Evolutionary economics is a school of

economic An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

thought that is inspired by

evolutionary biology Evolutionary biology is the subfield of biology that studies the evolutionary processes such as natural selection, common descent, and speciation that produced the diversity of life on Earth. In the 1930s, the discipline of evolutionary biolo ...

. Although not defined by a strict set of principles and uniting various approaches, it treats

economic development In economics, economic development (or economic and social development) is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and object ...

as a process rather than an equilibrium and emphasizes change (qualitative, organisational, and

structural A structure is an arrangement and organization of interrelated elements in a material object or system, or the object or system so organized. Material structures include man-made objects such as buildings and machines and natural objects such as ...

innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...

, complex interdependencies, self-evolving systems, and limited rationality as the drivers of economic evolution. Hodgson, G. M. (2012). ''Evolutionary Economics'', in Fundamental Economics, edited by Mukul Majumdar, Ian Wills, Pasquale Michael Sgro, John M. Gowdy, in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, EOLSS Publishers, Paris, France
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on April 24, 2023. The support for the evolutionary approach to economics in recent decades seems to have initially emerged as a criticism of the mainstream economics, mainstream

neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a go ...

, Hodgson, G. M. (1993). ''Economics and Evolution: Bringing Life Back Into Economics''. Cambridge, UK and Ann Arbor, MI: Polity Press and University of Michigan Press. but by the beginning of the 21st century it had become part of the economic mainstream itself.Friedman, D. (1998). Evolutionary Economics Goes Mainstream: A Review of the Theory of Learning in Games. ''Journal of Evolutionary Economics. 8''(4), pp. 423–432
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on March 8, 2022. Hodgson, G. M. (2007). Evolutionary and Institutional Economics as the New Mainstream? ''Evolutionary and Institutional Economics Review, 4''(1), pp. 7-25
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on July 9, 2020. Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather, it focuses on the Non-equilibrium economics, non-equilibrium processes that transform the economy from within and their implications, considering interdependencies and feedback. Galor, O. (2005). ''From Stagnation to Growth: Unified Growth Theory.'' In P. Aghion and S. Durlauf (eds.), Handbook of Economic Growth, Vol. 1A, pp. 224–235. The processes in turn emerge from the actions of diverse agents with

bounded rationality Bounded rationality is the idea that rationality is limited when individuals decision-making, make decisions, and under these limitations, rational individuals will select a decision that is satisficing, satisfactory rather than optimal. Limitat ...

who may learn from experience and interactions and whose differences contribute to the change.

Roots of evolutionary economics

Early ideas

The idea of human society and the world in general as subject to evolution has been following mankind throughout its existence.

Hesiod Hesiod ( or ; ''Hēsíodos''; ) was an ancient Greece, Greek poet generally thought to have been active between 750 and 650 BC, around the same time as Homer.M. L. West, ''Hesiod: Theogony'', Oxford University Press (1966), p. 40.Jasper Gr ...

, an

ancient Greek Ancient Greek (, ; ) includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world from around 1500 BC to 300 BC. It is often roughly divided into the following periods: Mycenaean Greek (), Greek ...

poet thought to be the first

Western Western may refer to: Places *Western, Nebraska, a village in the US *Western, New York, a town in the US *Western Creek, Tasmania, a locality in Australia *Western Junction, Tasmania, a locality in Australia *Western world, countries that id ...

written poet regarding himself as an individual, Barron, J. P., Easterling, P. E. (1989). ''Hesiod''. In Easterling, P. E., Knox, B. (eds.), The Cambridge History of Classical Literature: Greek Literature. Cambridge University Press, p. 51. described five

Ages of Man The Ages of Man are the historical stages of human existence according to Greek mythology and its subsequent interpretatio romana, Roman interpretation. Both Hesiod and Ovid offered accounts of the successive ages of humanity, which tend to pr ...

– the

Golden Age The term Golden Age comes from Greek mythology, particularly the ''Works and Days'' of Hesiod, and is part of the description of temporal decline of the state of peoples through five Ages of Man, Ages, Gold being the first and the one during wh ...

, the

Silver Age The Ages of Man are the historical stages of human existence according to Greek mythology and its subsequent interpretatio romana, Roman interpretation. Both Hesiod and Ovid offered accounts of the successive ages of humanity, which tend to pr ...

, the

Bronze Age The Bronze Age () was a historical period characterised principally by the use of bronze tools and the development of complex urban societies, as well as the adoption of writing in some areas. The Bronze Age is the middle principal period of ...

, the Heroic Age, and the

Iron Age The Iron Age () is the final epoch of the three historical Metal Ages, after the Chalcolithic and Bronze Age. It has also been considered as the final age of the three-age division starting with prehistory (before recorded history) and progre ...

– following from divine existence to toil and misery. Modern scholars consider his works as one of the sources for early economic thought.Gordon, B. J. (1975). ''Economic Analysis Before Adam Smith: Hesiod to Lessius''. Palgrave Macmillan, p. 3.Brockway, G. P. (2001) ''The End of Economic Man: An Introduction to Humanistic Economics, 4th edition''. W. W. Norton & Company, p. 128. The concept is also present in the ''

Metamorphoses The ''Metamorphoses'' (, , ) is a Latin Narrative poetry, narrative poem from 8 Common Era, CE by the Ancient Rome, Roman poet Ovid. It is considered his ''Masterpiece, magnum opus''. The poem chronicles the history of the world from its Cre ...

'' by

Ovid Publius Ovidius Naso (; 20 March 43 BC – AD 17/18), known in English as Ovid ( ), was a Augustan literature (ancient Rome), Roman poet who lived during the reign of Augustus. He was a younger contemporary of Virgil and Horace, with whom he i ...

, an

ancient Roman In modern historiography, ancient Rome is the Roman people, Roman civilisation from the founding of Rome, founding of the Italian city of Rome in the 8th century BC to the Fall of the Western Roman Empire, collapse of the Western Roman Em ...

poet. His Four Ages include technological progress: in the Golden Age, men did not know arts and craft, whereas by the Iron Age people had learnt and discovered

agriculture Agriculture encompasses crop and livestock production, aquaculture, and forestry for food and non-food products. Agriculture was a key factor in the rise of sedentary human civilization, whereby farming of domesticated species created ...

architecture Architecture is the art and technique of designing and building, as distinguished from the skills associated with construction. It is both the process and the product of sketching, conceiving, planning, designing, and construction, constructi ...

mining Mining is the Resource extraction, extraction of valuable geological materials and minerals from the surface of the Earth. Mining is required to obtain most materials that cannot be grown through agriculture, agricultural processes, or feasib ...

navigation Navigation is a field of study that focuses on the process of monitoring and controlling the motion, movement of a craft or vehicle from one place to another.Bowditch, 2003:799. The field of navigation includes four general categories: land navig ...

, and national boundaries, but had also become violent and greedy. This concept was not exclusive to the Greek and Roman civilizations (see, for instance, Yuga Cycles in

Hinduism Hinduism () is an Hypernymy and hyponymy, umbrella term for a range of Indian religions, Indian List of religions and spiritual traditions#Indian religions, religious and spiritual traditions (Sampradaya, ''sampradaya''s) that are unified ...

, the

Three Ages of Buddhism The Decline of the Dharma or Ages of the Dharma, refers to traditional Buddhist accounts of how the Buddhist religion and the Buddha's teaching (Dharma) is believed to decline throughout history. It constitutes a key aspect of Buddhist eschatol ...

, Aztecs’ Five Suns), but a common feature is the path towards misery and destruction, with technological advancements accompanied by moral degradation.

Medieval and early modern times

Medieval In the history of Europe, the Middle Ages or medieval period lasted approximately from the 5th to the late 15th centuries, similarly to the post-classical period of World history (field), global history. It began with the fall of the West ...

views on society, economics and politics (at least in

Europe Europe is a continent located entirely in the Northern Hemisphere and mostly in the Eastern Hemisphere. It is bordered by the Arctic Ocean to the north, the Atlantic Ocean to the west, the Mediterranean Sea to the south, and Asia to the east ...

and ''

Pax Islamica Islamica is an Islamic company founded in Chicago, Illinois that sells apparel, accessories and mass media, media marketed towards Muslim youth. It was founded in 1999 by Mirza Baig, Azher Ahmed and Afeef Abdul-Majeed. Islamica hosts an internet ...

'') were influenced by

religious Religion is a range of social- cultural systems, including designated behaviors and practices, morals, beliefs, worldviews, texts, sanctified places, prophecies, ethics, or organizations, that generally relate humanity to supernatural ...

norms and traditions.

Catholic The Catholic Church (), also known as the Roman Catholic Church, is the List of Christian denominations by number of members, largest Christian church, with 1.27 to 1.41 billion baptized Catholics Catholic Church by country, worldwid ...

and

Islamic Islam is an Abrahamic religions, Abrahamic monotheistic religion based on the Quran, and the teachings of Muhammad. Adherents of Islam are called Muslims, who are estimated to number Islam by country, 2 billion worldwide and are the world ...

scholars debated on the moral appropriateness of certain economic practices, such as

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

Thomas Aquinas Thomas Aquinas ( ; ; – 7 March 1274) was an Italian Dominican Order, Dominican friar and Catholic priest, priest, the foremost Scholasticism, Scholastic thinker, as well as one of the most influential philosophers and theologians in the W ...

. ''

Summa Theologica The ''Summa Theologiae'' or ''Summa Theologica'' (), often referred to simply as the ''Summa'', is the best-known work of Thomas Aquinas (1225–1274), a scholastic theologian and Doctor of the Church. It is a compendium of all of the main t ...

''. New York: English Dominican Fathers, 1981. Part II, Q78, A1
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on March 29, 2023.Institute of Islamic Banking and Finance (2023). ''Riba''
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on June 4, 2023. The subject of changes was thought of in existential terms. For instance,

Augustine of Hippo Augustine of Hippo ( , ; ; 13 November 354 – 28 August 430) was a theologian and philosopher of Berber origin and the bishop of Hippo Regius in Numidia, Roman North Africa. His writings deeply influenced the development of Western philosop ...

regarded

time Time is the continuous progression of existence that occurs in an apparently irreversible process, irreversible succession from the past, through the present, and into the future. It is a component quantity of various measurements used to sequ ...

as a phenomenon of the universe created by

God In monotheistic belief systems, God is usually viewed as the supreme being, creator, and principal object of faith. In polytheistic belief systems, a god is "a spirit or being believed to have created, or for controlling some part of the un ...

and a measure of change, whereas God exists outside of time.

. '' Confessions'', Book XI.

Project Gutenberg Project Gutenberg (PG) is a volunteer effort to digitize and archive cultural works, as well as to "encourage the creation and distribution of eBooks." It was founded in 1971 by American writer Michael S. Hart and is the oldest digital li ...

Archived
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on April 19, 2023. A major contribution to the views on the evolution of society was ''

Leviathan Leviathan ( ; ; ) is a sea serpent demon noted in theology and mythology. It is referenced in several books of the Hebrew Bible, including Psalms, the Book of Job, the Book of Isaiah, and the pseudepigraphical Book of Enoch. Leviathan is of ...

'' by

Thomas Hobbes Thomas Hobbes ( ; 5 April 1588 – 4 December 1679) was an English philosopher, best known for his 1651 book ''Leviathan (Hobbes book), Leviathan'', in which he expounds an influential formulation of social contract theory. He is considered t ...

. A human, according to Hobbes, is a matter in motion with one's own appetites and desires. Due to these numerous desires and the

scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...

of resources, the natural state of a human is a war of all against all:

, ''

'', Chapter XIII.

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on January 3, 2023.

"In such condition, there is no place for Industry; because the fruit thereof is uncertain; and consequently no Culture of the Earth; no Navigation, nor use of the
commodities In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Th ...
that may be imported by Sea; no commodious Building; no Instruments of moving, and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continual feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short."

In order to overcome this natural

anarchy Anarchy is a form of society without rulers. As a type of stateless society, it is commonly contrasted with states, which are centralized polities that claim a monopoly on violence over a permanent territory. Beyond a lack of government, it can ...

, Hobbs saw it necessary to impose an ultimate restraint in the form of a

sovereign ''Sovereign'' is a title that can be applied to the highest leader in various categories. The word is borrowed from Old French , which is ultimately derived from the Latin">-4; we might wonder whether there's a point at which it's appropriate to ...

Economic development, natural state, and social evolution

A landmark work in many senses, ''

The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', usually referred to by its shortened title ''The Wealth of Nations'', is a book by the Scottish people, Scottish economist and moral philosophy, moral philosopher Adam Smith; ...

'' by

Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...

was also one to offer a description of economic development throughout the history of mankind — as well as insights into the nature of this development. In ''Book III (Of the different Progress of Opulence in different Nations)'', Smith constantly underlines the importance of the natural order of things, which economic improvements follow, and shows the feedback chain that allows economies to progress further, based on what has been achieved. This falls in line with the notion of

natural rights Some philosophers distinguish two types of rights, natural rights and legal rights. * Natural rights are those that are not dependent on the laws or customs of any particular culture or government, and so are ''universal'', ''fundamental rights ...

shared by other

Age of Enlightenment The Age of Enlightenment (also the Age of Reason and the Enlightenment) was a Europe, European Intellect, intellectual and Philosophy, philosophical movement active from the late 17th to early 19th century. Chiefly valuing knowledge gained th ...

thinkers, such as

John Locke John Locke (; 29 August 1632 (Old Style and New Style dates, O.S.) – 28 October 1704 (Old Style and New Style dates, O.S.)) was an English philosopher and physician, widely regarded as one of the most influential of the Enlightenment thi ...

and

Montesquieu Charles Louis de Secondat, baron de La Brède et de Montesquieu (18 January 168910 February 1755), generally referred to as simply Montesquieu, was a French judge, man of letters, historian, and political philosopher. He is the principal so ...

. A somewhat different view relates to the names of prominent

socialists Socialism is an economic and political philosophy encompassing diverse economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes the economic, political, and socia ...

of the 19th century, who viewed economic and political systems as products of social evolution (in contrast to the notions of

and

morality Morality () is the categorization of intentions, Decision-making, decisions and Social actions, actions into those that are ''proper'', or ''right'', and those that are ''improper'', or ''wrong''. Morality can be a body of standards or principle ...

). In his book '' What is Property?'',

Pierre-Joseph Proudhon Pierre-Joseph Proudhon (, ; ; 1809 – 19 January 1865) was a French anarchist, socialist, philosopher, and economist who founded mutualist philosophy and is considered by many to be the "father of anarchism". He was the first person to ca ...

noted: Proudhon, Pierre-Joseph (1994). '' What is Property?''

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on April 5, 2023.

“Thus, in a given society, the authority of man over man is inversely proportional to the stage of intellectual development which that society has reached.”

The approach was also employed by

Karl Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

. In his view, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that made them impossible to survive in the long term. In Marx's scheme,

feudalism Feudalism, also known as the feudal system, was a combination of legal, economic, military, cultural, and political customs that flourished in Middle Ages, medieval Europe from the 9th to 15th centuries. Broadly defined, it was a way of struc ...

was replaced by

capitalism Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

, which would eventually be superseded by socialism. Gregory, P. R., Stuart, R. C. (2005). ''Comparing Economic Systems in the Twenty-First Century, Seventh Edition''. South-Western College Publishing.

Emergence as a separate field of study

The term "evolutionary economics" might have been first coined by

Thorstein Veblen Thorstein Bunde Veblen (; July 30, 1857 – August 3, 1929) was an American Economics, economist and Sociology, sociologist who, during his lifetime, emerged as a well-known Criticism of capitalism, critic of capitalism. In his best-known book ...

. Veblen saw the need for taking into account cultural variation in his economic approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviours that the new science of

anthropology Anthropology is the scientific study of humanity, concerned with human behavior, human biology, cultures, society, societies, and linguistics, in both the present and past, including archaic humans. Social anthropology studies patterns of behav ...

showed to be the rule rather than an exception. Hodgson, G. M. (2004). ''The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism''. London and New York: Routledge. He also argued that social institutions are subject to selection process Camic, C., Hodgson, G. M. (eds.) (2011). ''Essential Writings of Thorstein Veblen''. London and New York: Routledge. and that economic science should embrace the Darwinian theory. Veblen, T. B. (1898). Why Is Economics Not an Evolutionary Science? ''The Quarterly Journal of Economics, 12''(3), pp. 373-97. Veblen, T. B. (1899). '' The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions''. New York: Huebsch
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on November 22, 2021. Veblen, T. B. (1919). ''The Place of Science in Modern Civilisation and Other Essays''. New York: Huebsch.

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on June 5, 2023. Veblen's followers quickly abandoned his evolutionary legacy.Rutherford, M. H. (2011). ''The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control.'' Cambridge and New York: Cambridge University Press. When they finally returned to the use of the term “evolutionary”, they referred to development and change in general, without its Darwinian meaning. Further researchers, such as

Joseph Schumpeter Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian political economist. He served briefly as Finance Minister of Austria in 1919. In 1932, he emigrated to the United States to become a professor at Harvard Unive ...

, studied

entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...

and innovation using this term, but not in the Darwinian sense. Witt, U. (2002). How Evolutionary is Schumpeter's Theory of Economic Development? ''Industry and Innovation, 9''(1/2), pp. 7-22. Another prominent economist,

Friedrich von Hayek Friedrich August von Hayek (8 May 1899 – 23 March 1992) was an Austrian-born British academic and philosopher. He is known for his contributions to political economy, political philosophy and intellectual history. Hayek shared the 1974 Nobe ...

, also employed the elements of the evolutionary approach, especially criticizing “ the fatal conceit” of socialists who believed they could and should design a new society while disregarding human nature. Hayek, F. A. (1988). '' The Fatal Conceit: The Errors of Socialism.'' In William W. Bartley III (ed.), The Collected Works of Friedrich August Hayek, Vol. I. London: Routledge
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on March 24, 2023. However, Hayek seemed to see the Darwin theory not as a revolution itself, but rather as an intermediary step in the line of evolutionary thinking. There were other notable contributors to the evolutionary approach in economics, such as Armen Alchian, who argued that, faced with

uncertainty Uncertainty or incertitude refers to situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown, and is particularly relevant for decision ...

and

incomplete information In economics and game theory, complete information is an economic situation or game in which knowledge about other market participants or players is available to all participants. The utility functions (including risk aversion), payoffs, strategies ...

, firms adapt to the environment instead of pursuing

profit maximization In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that will lead to the highest possible total profit (or just profit in short). In neoclassical economics, ...

''An Evolutionary Theory of Economic Change'' and beyond

The publication of ''An Evolutionary Theory of Economic Change'' by Richard R. Nelson and Sidney G. Winter in 1982 marked a turning point in the field of evolutionary economics. Inspired by Alchian's work about the decision-making process of firms under uncertainty and the behavioural theory of the firm by Richard Cyert and James March, Cyert, R. M., March, J. G. (1963). '' A Behavioral Theory of the Firm''. Engelwood Cliffs, NJ: Prentice-Hall. Nelson and Winter constructed a comprehensive evolutionary theory of business behavior using the concept of

natural selection Natural selection is the differential survival and reproduction of individuals due to differences in phenotype. It is a key mechanism of evolution, the change in the Heredity, heritable traits characteristic of a population over generation ...

. In this framework, firms operate on the basis of organizational routines, which they evaluate and may change while functioning in a certain selection environment. Nelson, R. R., Winter, S. G. (1982). ''An Evolutionary Theory of Economic Change''. Cambridge, MA: Harvard University Press
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on March 23, 2023. Since then, evolutionary economics, as noted by Nicolai Foss, has been concerned with “the transformation of already existing structures and the emergence and possible spread of novelties.” Foss, N. J. (1994). Realism and Evolutionary Economics. ''Journal of Social and Evolutionary Systems, 17''(1), pp. 21-40. Economies have been viewed as a complex system, a result of causal interactions (non-linear and chaotic) between different agents and entities with varied characteristics.Saviotti, P. P. (1996). ''Technological Evolution, Variety and the Economy''. Aldershot: Edward Elgar. Instead of perfect information and rationality, Herbert Simon's concept of

Simon, H. A. (1957). ''Models of Man: Social and Rational. Mathematical Essays on Rational Human Behavior in a Social Setting''. New York: Wiley. has become prevailing. By the 1990s, as put by

Geoffrey Hodgson Geoffrey Martin Hodgson (born 28 July 1946, Watford) is Emeritus Professor in Management at the London campus of Loughborough University, and also an editor of the ''Journal of Institutional Economics.'' Hodgson is recognised as one of the le ...

“it was possible to write of an international network or ‘ invisible college’ of ‘evolutionary economists’ who, despite their analytical differences, were focusing on the problem of analyzing structural, technological, cultural and institutional change in economic systems… They were also united by their common dislike of the static and equilibrium approaches that dominated mainstream economics.”

Recent developments in evolutionary economics

The role of evolutionary forces in the process of economic development over the course of human history has been further explored during the past decades. For example, Paul Rubin extensively described how apparent anomalies in decision-making, such as violations of the maximization principle, a zero-sum way of thinking, or a dislike of competition and

free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...

, may be a result of the human brain evolution. Rubin, P. H. (2002). ''Darwinian Politics: The Evolutionary Origin of Freedom''. Rutgers University Press. Rubin, P. H. (2008). Folk Economics. ''Southern Economic Journal, 70''(1), pp. 157–171
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on January 29, 2025. Another concept Rubin and his colleagues viewed through the lenses of evolutionary analysis is the utility function, which may essentially be represented as the fitness evolutionary function. Rubin, P. H. Capra, C. M. (2011). ''The Evolutionary Psychology of Economics.'' In Roberts, S. C. (ed.), Applied Evolutionary Psychology. Oxford University Press. Elements of evolutionary approach have also appeared in

financial economics Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial Economics", in Its co ...

. Around 2004,

Andrew Lo Andrew Wen-Chuan Lo (; born 1960) is a Hong Kong-born Taiwanese-American economist and academic who is the Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management. Lo is the author of many academic articles in f ...

proposed the adaptive market hypothesis — an extension of the

efficient market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis ...

that treats financial market agents as "species" who exist in some environment (e.g., the number of competitors, profit opportunities) and behave accordingly. Lo, Andrew W. (2004). The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective. ''Journal of Portfolio Management, 5''(30), pp. 15–29
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on January 29, 2025. Lo, Andrew W. (2017). ''Adaptive Markets: Financial Evolution at the Speed of Thought.'' Princeton University Press. This hypothesis does not deny that efficient financial market equilibria may exist, but it necessarily suggests that other states may emerge and evolve due to adaption and natural selection. Although quite recent, Lo's hypothesis has already been empirically tested with regard to a number of cases, such as the analysis of influence of religious holidays and political regimes on financial markets in Islamic countries Shahid, M. N., Sattar, A. (2017). The Behavior of Calendar Anomalies, Market Conditions, and Adaptive Market Hypothesis: Evidence from Pakistan Stock Exchange. ''Pakistan Journal of Commerce and Social Sciences, 11''(2), pp. 471-504
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on January 29, 2025. or the evolution of

Bitcoin Bitcoin (abbreviation: BTC; Currency symbol, sign: ₿) is the first Decentralized application, decentralized cryptocurrency. Based on a free-market ideology, bitcoin was invented in 2008 when an unknown entity published a white paper under ...

market.Khuntia, S., Pattanayak, J. K. (2018). Adaptive Market Hypothesis and Evolving Predictability of Bitcoin" ''Economics Letters. 167'', pp. 26-28.

The Unified Growth Theory

A considerable contribution to the understanding of economies as constantly evolving systems was provided by Oded Galor and his colleagues. A pioneer of the Unified Growth Theory, Galor depicts economic growth and development throughout human history as a continuous process driven by technological progress and the accumulation of

human capital Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a subs ...

as well as by the accumulation of those biological, social and cultural features that favour further development. According to Galor's model, technological advancements in the early eras of the mankind (during the Malthusian epoch, with limited resources and near-

subsistence A subsistence economy is an economy directed to basic subsistence (the provision of food, clothing and shelter) rather than to the market. Definition "Subsistence" is understood as supporting oneself and family at a minimum level. Basic subsiste ...

levels of income) would lead to increases in the size of population, which in turn would further accelerate technological progress due to the production of new ideas and the increase in demand for them. At some point technological advancements would require higher levels of

education Education is the transmission of knowledge and skills and the development of character traits. Formal education occurs within a structured institutional framework, such as public schools, following a curriculum. Non-formal education als ...

and generate the demand for educated

labour force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...

. After that, an economy would move into a new phase characterised by

demographic transition In demography, demographic transition is a phenomenon and theory in the Social science, social sciences referring to the historical shift from high birth rates and high Mortality rate, death rates to low birth rates and low death rates as societi ...

(given that investment into less children, although more costly, would yield higher returns) and sustained

economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...

. Galor, O. (2011). ''Unified Growth Theory''. Chapter 5. Princeton University Press, 2011. The process is accompanied by improvements in

living standards Standard of living is the level of income, comforts and services available to an individual, community or society. A contributing factor to an individual's quality of life, standard of living is generally concerned with objective metrics outside ...

, the position of the

working class The working class is a subset of employees who are compensated with wage or salary-based contracts, whose exact membership varies from definition to definition. Members of the working class rely primarily upon earnings from wage labour. Most c ...

as necessary in order to complement technological progress (contrary to Marx and his followers, who predicted its further impoverishment), and the position of women, paving the way for further

social Social organisms, including human(s), live collectively in interacting populations. This interaction is considered social whether they are aware of it or not, and whether the exchange is voluntary or not. Etymology The word "social" derives fro ...

and

gender equality Gender equality, also known as sexual equality, gender egalitarianism, or equality of the sexes, is the state of equal ease of access to resources and opportunities regardless of gender, including economic participation and decision-making, an ...

improvements. Galor, O. (2022). ''The Journey of Humanity: The Origins of Wealth and Inequality''. Penguin Random House, 2022. Interdependent, these elements facilitate each other, creating a unified process of growth and development, although the pace may be different for different societies. In ''The Journey of Humanity: The Origins of Wealth and Inequality'' (2022) Galor provides some statements that further solidify his evolutionary approach:

“Consider… two large clans: the Quanty and the Qualy… Suppose that Quanty households bear on average four children each, of whom only two reach adulthood and find a reproductive partner. Meanwhile, Qualy households bear on average only two children each, because their budget does not allow them to invest in the education and health of additional offspring '' ic!', and yet, thanks to the investment that they do make, both children not only reach adulthood and find a reproductive partner but they also find jobs in commercial and skill-intensive occupations… Now suppose the society in which they live is one where technological development boosts the demand for the services of blacksmiths, carpenters and other trades who can manufacture tools and more efficient machines. This increase in earning capacity would place the Qualy clan at a distinct ''evolutionary advantage''. Within a generation or two, its families are likely to enjoy higher incomes and amass greater resources.”

Criticism

The emergence of modern evolutionary economics was welcomed by the critics of the neoclassical mainstream. However, the field, especially the approach by Nelson and Winter, has also drawn critical attitude from other heterodox economists. A year after ''An Evolutionary Theory of Economic Change'' was published, Philip Mirowski expressed his doubts that this framework represented genuine evolutionary economics research (i.e., in the vein of Veblen) and not just a variant of neoclassical methodology, especially since the authors admitted their framework could include neoclassical orthodoxy. Mirowski, P. (1983). An Evolutionary Theory of Economics Change: A Review Article. ''Journal of Economic Issues, 17''(3), pp. 757-768. Some Veblenian institutionalists claim this framework is only a “protective modification of the neoclassical economics and is antithetical to Veblen's evolutionary economics.”Jo, Tae-Hee (2020). ''A Veblenian Critique of Nelson and Winter's Evolutionary Theory''. MPRA Paper No. 10138
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on May 15, 2021. Another possible shortcoming (recognized by the proponents of modern evolutionary economics) is that the field is heterogenous, with no convergence on an integrated approach.

Related fields

Evolutionary psychology

Evolutionary psychology is a theoretical approach in

psychology Psychology is the scientific study of mind and behavior. Its subject matter includes the behavior of humans and nonhumans, both consciousness, conscious and Unconscious mind, unconscious phenomena, and mental processes such as thoughts, feel ...

that examines cognition and behaviour from a modern evolutionary perspective. Schacter, D. L., Gilbert, D. T., Wegner, D. M. (2010). ''Psychology''. Macmillan, p. 26.Longe, J. L. (2016). ''The Gale Encyclopedia of Psychology (3rd ed.)''. Gale Research Incorporated, pp. 386–388. It seeks to identify human psychological adaptations with regards to the ancestral problems they evolved to solve. In this framework, psychological traits and mechanisms are either functional products of natural and sexual selection or non-adaptive by-products of other adaptive traits. Economic concepts can also be viewed through these lenses, as demonstrated by Paul Rubin, among others.

Evolutionary game theory

Evolutionary game theory is the application of

game theory Game theory is the study of mathematical models of strategic interactions. It has applications in many fields of social science, and is used extensively in economics, logic, systems science and computer science. Initially, game theory addressed ...

to evolving populations in biology. It defines a framework of contests, strategies, and analytics into which Darwinian competition can be modelled. It originated in 1973 with

John Maynard Smith John Maynard Smith (6 January 1920 – 19 April 2004) was a British mathematical and theoretical biology, theoretical and mathematical evolutionary biologist and geneticist. Originally an aeronautical engineer during the Second World War, he ...

and George R. Price's formalisation of contests, analysed as strategies, and the mathematical criteria that can be used to predict the results of competing strategies. Maynard Smith, J., Price, G. R. (1973). The Logic of Animal Conflict. ''Nature. 246''(5427), pp. 15–18
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on June 6, 2023. Evolutionary game theory has helped to explain the basis of altruism, altruistic behaviours in Darwinian evolution. It has in turn become of interest to sociologists, anthropologists, philosophers, and economists. Michihiro, K. (1997). ''Evolutionary game theory in economics''. In Kreps, D. M., Wallis, K. F. (eds.). Advances in Economics and Econometrics: Theory and Applications. Vol. 1. Cambridge University Press. pp. 243–277.

Roots of evolutionary economics

Early ideas

Medieval and early modern times

Economic development, natural state, and social evolution

Emergence as a separate field of study

''An Evolutionary Theory of Economic Change'' and beyond

Recent developments in evolutionary economics

The Unified Growth Theory

Criticism

Related fields

Evolutionary psychology

Evolutionary game theory

See also

References

Further reading

Journals