- New Horizons in Institutional and Evolutionary Economics series
Chapter 2: Causes and consequences of the widening of the market: a case of cumulative economic evolution
David Hamilton, one of the leading scholars in evolutionary economics, identified change as one of the important differences between classical and evolutionary economics. Classical economists viewed change as discontinuous, but the structure of the economy did not change and equilibrium would, therefore, be reestablished within the existing structure. The disturbing forces were exogenous to the economy (Hamilton 1970, p. 17). The paradigm of machines with metaphors such as overheating and pump priming are frequently invoked. In contrast, evolutionary economists view the economy as a human process that is always undergoing cumulative change. As Gunnar Myrdal, a Nobel Economics Laureate, noted, “stable equilibrium is a false analogy to choose when constructing a theory to explain the changes in a social system” (Myrdal 1957, p. 13). Myrdal went on to define the concept of social and economic evolution in the following positive statement. In the normal case a change does not call forth countervailing changes but, instead, supporting changes which move the system in the same direction as the first change but much further. Because of such circular causation a social process tends to become cumulative and often to gather speed at an accelerating rate. (Myrdal 1957, p. 13) A change can ignite a virtuous or vicious cycle. Those seeking to enact policies that will encourage a virtuous cycle of economic development attempt to identify a strategic factor that will do that. However, that will not be sufficient to ensure a self-sustaining virtuous cycle of economic development. Because, as Myrdal noted, “everything is cause to everything else in an interlocking interacting circular manner,” other institutions will need to be modified or created (Myrdal 1957, p. 13). This describes the process of artificial selection instead of natural evolution. These policy actions look to the future and are based on expectations which can cause instability at the individual and social levels.
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