Biological evolution as an analogy for the market economy

Both evolution and the free market are powerful forces in our universe. They can create both immense suffering and unimaginable success. We make moralistic judgments about the outcomes, but they are amoral.

By approaching economic policy in much the same way we approach biology I believe we can begin to resolve a lot of our ideological grievances.

Evolution

Evolution through natural selection is the means by which simpler organisms evolve into more complex ones (generally over long periods of time) through many, small incremental changes (mutations).

Although the mutations are random, the selective pressure put on any given organism by its environment allows the organisms “lucky” enough to have gotten beneficial mutations to copy these on to the next generation. Since these mutations confer some sort of adaptive advantage over other organisms without that mutation the “good” genes will, on average, get passed on to successive generations where new mutations may arise, repeating the loop.

One organism is not very different from its immediate ancestor. But over many generations, big differences emerge and the complexity will often (but not always) increase.

Misconceptions about evolution

There are many common misconceptions and myths about evolution. Here are three that are relevant to this article:

First of all, the term “survival of the fittest” as understood by most people is a little misleading. It invariably makes us think of fitness as physical prowess. But it has more to do with the relative fitness of an organism vis-à-vis its environment. How well the organism is able to adapt to external selective pressures (such as from other organisms).

An organism can have fitness both in the immediate sense of being able to outrun a predator — or indeed being fast enough to catch prey. And on evolutionary time scales as in a species having the fitness to adapt to a changing climate, and migrating to a new habitat.

Second, a common misinterpretation of evolution is that it represents a progression from simple to advanced or worse to better. But the results of the current evolution of say, Homo Sapiens, is not the end-goal. On the contrary, it is a non-linear never-ending process of changes. One state of that process is not necessarily better or “more evolved” than a previous state. It is just different as a result of the selective pressures which a given organism is currently under. The organisms who are well-adapted in a sexual or natural sense tend to survive. Human beings are not “more evolved” than other apes. We are not a linear improvement from our closest ancestors, but merely a different branch.

This is an important point, because we tend to think of ourselves as more evolved than other animals. As if evolution was a ladder and every rung of the ladder represents a higher and higher state of evolution.

Third, having the characteristic of being “natural” (as if there are things who are not?) does not make something good or bad, better or worse. There’s even a logical fallacy named after this error: an appeal to nature. We need not accept something just because it is natural; nobody would suggest that cancer is good because it is a “naturally” occurring phenomenon. We make moral judgements as social and conscious creatures. We actively choose to treat and prevent cancer because we don’t like it. Because we value living long and healthy lives.

My point is the following: we don’t need throw our hands up into surrender at everything evolution has “produced”. If we can change something in order to improve our well-being then that’s a very good reason to try.

That’s not to say evolution is something we should try to inhibit. Evolution happens and we can’t do anything about it. But we can manipulate the outcome, we can change the direction to fit our needs and wants. Agriculture and animal domestication are two examples of artificial selection at play. We’ve been doing it for millennia. And we’re doing it even more successfully with the introduction of GMOs. In the future, we will probably be able to edit our own genes and that of our offspring directly. This will certainly bring with it a host of moral and ethical dilemmas, but the point is that we decide what we think is desirable and undesirable, good or bad — not “nature”.

How to make a bicycle

So, after a rather lengthy preamble I can now move on to the main point of this article. My claim is that market economies work so well because they produce growth and (increasingly complex) products much like evolution produces change and complex organisms. Namely, by a process of selection or what Adam Smith referred to as “the invisible hand”; the self-regulating nature of the free market.

Although Smith’s invisible hand sounds mysterious, there is nothing magical about it. It is an inherent property of the system. A system in which the selective pressure of all its subsystems and components causes feedback loops that iteratively produce more and more complex products as well as economic growth and welfare.

In the free market, these subsystems and components are consumers and producers that compete against each other. As an example consider the bicycle, the most common vehicle of transportation in the world. Early versions were not very reliable and much harder to ride than modern ones. Today there many different types of bicycles, at different prices and for different purposes. Even the cheapest of bicycles are very complex pieces of engineering. They are the result of more than a century of incremental improvements. Improvements driven by competing producers and the needs of customers. A modern bicycle could not have gotten invented “out of thin air”.

Externalities

Just like biological systems, market economies are best thought of as systems whose constituent parts co-evolve along with each other and the environment, producing ever-increasing complexity. Like evolution, remarkably complex things can “created” given enough time. But not everything resulting from such a complex adaptive system is inherently good or “meant to be”.

Different kinds of selective pressures like incentives and competition create complexity in free markets. This complexity leads to unpredictable outcomes that are not always beneficial to all the actors within the system.

Just like biological evolution has produced things we dislike such as parasites, viruses, and cancers. Things that we actively try to counteract through the practice of medicine. Market economies sometimes result in undesirable outcomes, like economic depression and wealth inequality. It would be an understatement to say that this has devastating consequences for individual people, families, and communities.

The “tragedy of the commons” is another example that comes to mind. It refers to a situation where the best choice for individuals acting in their own self-interest is not in the best long-term interest of the group or population as a whole. A company choosing to discard waste from its factories in a lake is acting in its own self-interest. But their choice has long-term negative consequences for the ecosystem as well as the people who drink the water from the lake, for example. Clearly it is in the best interest of everyone that “someone” imposes certain constraints and regulations on the disposal of toxic waste. Enough that people are not needlessly harmed but not so much that the company cannot produce its products and compete. Needless to say, this is not always easy.

People on the right of the political spectrum tend to overestimate the ability of the market to regulate itself and tend to view the free market as inherently virtuous, that all outcomes are good and necessary. Laissez-faire capitalism. Leftists on the other hand typically believe that the market is a beast that must be tamed, put on a leash. They overestimate the efficiency of regulations and try to control the market as much as possible.

The amoral nature of nature

Biological evolution is analogous to the free market in that both are complex systems whose outputs are neither inherently good or bad. Just as we attempt to cure cancer, we also attempt to steer the market economy to produce outcomes that are beneficial for everyone. We don’t lay down and die at the first onslaught of disease just as we don’t let economic recession turn into depression without trying to stop it.

As with so much else, the middle ground is where one must look for the right course of action. On the one hand, we must recognize that the free market produces welfare and growth that wouldn’t be possible in any other way. Yet we are also completely justified in regulating the free market for it to produce beneficial outcomes (as we are already doing). The question is how often, in what circumstances and to what extent. I don’t claim to know that, but I do know that one must be very careful when imposing regulations. Because of the nature of such a complex adaptive system as the economy, it is rarely clear what the outcome will be.

A good way to think about it is that we must try to “harness the power” of the free market, but we don’t have to accept everything it throws at us.