What Darwin Can Teach Us About the Economy

Written by Matt Harrison | 24 November 2009

Today is the 150th anniversary of Charles Darwin's publication of The Origin of Species, and it's worth recalling the central lesson of his revolutionary contribution. As philosopher Daniel Dennett argues, Darwin's "dangerous idea" was the concept that complex adaptation can occur spontaneously. Or put another way, that Design can evolve without a Designer.

These lessons have important applications to all Americans as we face difficult challenges in health care, education, alternative energy, and the economy at large. It's tempting to rely on economists and policy experts who assure us they know how to Design a solution to every problem, but evolution teaches us that they don't. Evolution is unpredictable, spontaneous, and randomly generated.

To evolve, self-organizing systems need only variation among options, a selection mechanism to determine which options are most effective, and an ability to preserve successful variations.

In the economic context, variation simply means the competitive freedom to introduce new ideas into the marketplace. Selection simply means the freedom of consumers to choose which options work for them. And preservation simply means a system of secure property rights to protect investments.

As a leading evolutionary scientist put it, “We have more than just a few little hints that, for Darwin, the driving force behind all sorts of evolutionary change, including progress, is the sort of competition that goes on in the natural economy and the political economy alike.”

Unfortunately, our political leaders have ignored Darwin's great lesson. Policies like the Fed's interest rate cuts and money supply expansion, as well as Congress' indirect inducements to invest in certain industries (such as encouraging mortgages to subprime buyers), were atrociously failed economic Designs. These policies blunted the forces of evolution, artificially diverting activity toward unproductive and unwise investments.

Not surprisingly, the result was an economic extinction on a Permian level. To compound the problem, the politicians responded with more grandiose Designs and a spate of bailouts, resuscitating the failing corporations who have proven their inability to adapt to difficult times. As anyone reading this paper knows, this "solution" has only made things worse.

The "too big to fail" concept is not only anti-American, but also anti-evolution. Over 99.9% of species over time have gone extinct over time. Natural selection itself is defined as "differential reproduction", meaning some variations survive while others (usually most) perish. With this context, it's no surprise that we're facing record unemployment while the artificial stimulus is not working. Our economy can't evolve.

Of course, to many, this smacks of Social Darwinism. But Social Darwinism has been wholly discredited by the modern understanding of evolution. True social evolution thrives on reciprocity, which means protecting people while letting unfit ideas (specifically in the form of businesses, government programs, and other institutions) die out. It's "survival of the fittest" ideas, not people. This means while we can take care of people who need help outside the marketplace, government shouldn't interfere with the competitive process itself.

To help America evolve again, we should start by letting failing businesses fail, preserving the opportunity for new solutions to emerge. We should reduce the tax and regulatory burdens on entrepreneurs, freeing them to introduce new variations into the marketplace. We should cut business and personal taxes across the board, freeing the American people to make more choices and do more with their money. And in health care, education, and the environment, enact policies that increase consumer choice and competition among various options.

Self-organization is the fundamental law of nature. 150 years after Darwin shook the world with his insights, Washington has yet to be convinced. It's time for us to use his ideas and preserve the American evolution. Otherwise, we'll just continue to go the way of the Romans - and the dinosaurs.