Economics needs to evolve

NOT FOR the first time this century, the global economy is rebounding from crisis. The new normal will differ from the old one. The pandemic shifted resources around, destroyed firms, and subtly adjusted habits. The economy has evolved, in other words. Strangely, most economic models do not treat the economy as an evolving thing, undergoing constant change. They instead describe it in terms of its equilibrium: a stable state in which prices balance supply and demand, or the path the economy follows back to stability when a shock disturbs its rest. Though such strategies have sometimes proved useful, economics is the poorer for its neglect of the economy’s evolutionary nature.

Evolutionary economics seeks to explain real-world phenomena as the outcome of a process of continuous change. Its concepts often have analogues in the field of biological evolution, but evolutionary economists do not attempt a rigid mapping of biological theories to economic ones. An evolutionary approach acknowledges that the past informs the present: economic choices are made within and informed by historical, cultural and institutional contexts. Fittingly, the habits of the economics profession today can be understood only by examining the field’s own history. In the 19th century the discipline that would become economics was an evolutionary science in several senses. Thinkers of diverse backgrounds vied to offer theories which best explained economic activity while, at the same time, its practitioners saw the object of their study as an extension of the biological sciences.