Stuart Kauffman points out the fixation of economists on market equilibrium and their exclusive dependence on the work of physicists.india Updated: Oct 23, 2006 05:19 IST
We do not need economists to tell us that economic growth depends on technological development. But, perhaps, we need them to show how technologies also evolve like species do and, therefore, can hold the key to ‘future wealth’. Stuart Kauffman points out in the Scientific American’s latest issue, the fixation of economists on market equilibrium and their exclusive dependence on the work of physicists. Kauffman gives an excellent example: the Black-Scholes model that physicists built in the Seventies, which is based on the thermodynamic equation.
Economists, though, use it extensively as a tool to predict the volatility of stock prices! Kauffman rightly suggests that when it comes to handling increasingly complicated phenomena, economics would do well to shift its focus from physics to biology. After all, the biosphere and the living things in it stand for the most complex systems in nature, and understanding how species adapt and evolve could bring key insights into ‘business adaptability’ and the ‘engines of economic growth’. This is not for the first time that researchers have decried the excessive dependence of economics on the principles of mechanics, and called for a paradigm shift towards biology instead.
The evolutionary formulae of variation, selection and replication could very well apply in both realms. Don’t corporate giants and small firms alike constantly try to improve their business models, providing a source of variation? And doesn’t the market itself — what is bought and what is left on the shelf — represent a powerful form of selection?