The Evolutionary Economists
The orthodox economics is squarely based on the institutions of individualism, economic rationality, private property and exchange (market economy). It faces six fundamental questions: (i) will the society organized on the principles of exchange stay composed or will it fall apart (the question of existence of equilibrium)?, (ii) will such an equilibrium be unique (a multiplicity of equilibria poses difficult and embarrassing questions)?, (iii) will such an equilibrium be robust (the question of stability of equilibrium)?, (iv) will such an economy (society) be efficient?, (v) will it grow or expand forever?, and (vi) will it be just? The classical economists, Adam Smith in particular, answered all these questions affirmatively using a characteristic methodology. However, Karl Marx challenged the entire structure of faith in the merits of the exchange economy and shattered all optimism regarding the said order. Some economists, mostly using a complex of mathematical, marginalist, rationalistic, atomistic and hedonistic methodology set out to prove that answers to all those six questions were in the affirmative. They worked hard to restructure the faith in the said order centered around the market. This led to the development of what Thorstein Veblen called Neo-Classicism. Against the Classicists who reasoned at the supra-individual (social) level, the Neo-Classical Economists investigated into Microeconomics. Keynes and the Keynesian economists went back to gross aggregates at the national level, i.e. macroeconomics. However, the micro foundations of macroeconomics remained insecure even after the proposed Neo-Classical Synthesis.
Evolutionary Economics (the term coined by Thorstein Veblen in 1898) proposes to synthesize micro and macro economics by introducing meso-economics that incorporates Institutional (and New Institutional) economics at the middle level. The Classical Economics was a class-based analysis - how different economic classes (landlords, industrialist and labourers) participated in economic activities and how their interests were synthesized in spite of conflicts among them. It recognised sectoral differences in opportunities and rewards that attracted resources, labour, capital and enterprise differently. It acknowledged the role of institutions in shaping the spectra of human motivations and endeavors. Adam Smith's The Theory of the Moral Sentiments is a treasure-house of such ideas. But, subsequently, the Marxian critique of Classical Economics made class-based analysis repulsive (to many economists). The Neo-Classicists abandoned the class-based analysis, reduced economics to microeconomics and uncritically resorted to methodological individualism, methodological instrumentalism and methodological equlibrium. As a result, macroeconomic phenomena were considered as mechanical aggregates (of micro decisions) and mesoeconomics was completely ignored. Keyenes, however, pointed out that macroeconomic phenomena are not a mechnical aggregate of microeconomic phenomena. Since then, the establishment economists have worked hard to devise theories (including rational expectations approach) to explain the formation of macroeconomic phenomena as some sort of aggregate of microeconomic phenomena. Nevertheless, this effort to synthesize micro and macro has failed. Evolutionary Economics points out that the clue to such a synthesis lies in understanding mesoeconomics, the economics at the middle level, which is neither at the individual level nor at the national level. Institutions play a great role at the meso level. The phenomena of emergence is recognised. This synthesis is organic rather than mechanical and works on the principles of evolution.
Methodologically, Evolutionary Economics abandons physics as a role model for economics and adopts biology as a new role model, seeking for the the mechanisms that provide selection, generate variation and establish self-replication. It incorporates the study of the memes. It abandons equilibrium and adopts the methods of non-equilibrium economics. It emphasizes "process" rather than the terminals of the process; it stresses on "becoming" rather than "being". It discards rationality and works on the philosophy of bounded rationality. It shuns a perfunctory and tangential treatment given to enterprise, innovation and creative destruction by the Neo-Classicists and bases itself on the ideas of Wener Sombart and Joseph Schumpeter. It abandons the linear logic and entertains circular and cumulative causation. It also seeks global optimum through imperfectly informed, bounded rational, uncoordited and decentralized individual decisions and actions.
In the opinion of Geoffrey Hodgson "... the possibilities for the development of institutional and evolutionary economics are much greater today than they were in the 1980s, or even the 1990s. These opportunities have emerged at a time when there is widespread dissatisfaction with neoclassical approaches, and major departures from previous canons of orthodoxy are taking place." (see Hodgson, G. M. (2007) "Evolutionary and Institutional Economics as the New Mainstream?", Evol. Inst. Econ. Rev. 4(1): 7-25). Frank Hahn, a noted mathematical economist, wrote: "I am pretty certain that the following prediction will prove to be correct: theorising of the 'pure' sort will become both less enjoyable and less and less possible ... rather radical changes in questions and methods are required ... the signs are that the subject will return to its Marshallian affinities to biology. ... Not only will our successors have to be far less concerned with the general ... they will study particular histories and methods capable of dealing with the complexity of the particular ... Not for them the grand unifying theory of particle physics which seems to beckon physicists ... [but also] less frequently for them the pleasures of theorems and proof. Instead the uncertain embrace of history and sociology and biology. (see Hahn, F. H. (1991) "The Next Hundred Years", Economic Journal, 101(1): 47-50). Kenneth Arrow observed: "the very notion of what constitutes an economic theory will have to change. For a century, some economists have maintained that the biological is a more appropriate paradigm for economics than equilibrium models analogous to mechanics. ... economic theory may well take an analogous course. (see Arrow, K. J. (1995) "Viewpoint: The Future", Science, 267: 1617). It appears that the prophecy of Alfred Marshall would come true : "The Mecca of the economist lies in economic biology rather than in economic dynamics. But biological conceptions are more complex than those of mechanics". (see Marshall, A. (1920) Principles of Economics (Preface 8 Ed), Macmillan).