[Biology and economics have something in common: both fields are about knowledge, and how it grows]
At first glance, a university’s biology department and its economics department appear to have nothing to do with one another. They are likely in separate buildings on campus. They study different subject matters, use different methodologies. Yet it turns out some surprising commonalities exist between biology and economics.
The general public often makes a similar mistake about both fields, namely, they reject what is called “spontaneous order,” or “design without a designer.” They look at biological phenomena and economic phenomena and assume that someone, somewhere, must have planned for those things to happen.
The controversy over the existence of a designer is quite well-known in biology, as widely-publicized battles have been waged over whether the complexity, diversity, and beauty of life demand a belief that it was designed by an entity with a purpose. Religions often provide an explanation of the origin of life that includes a designer.
Charles Darwin’s theory of evolution by natural selection implies that the emergence of breathtaking order in the biosphere did not, in fact, require a designer. His ideas have met such firm resistance over the past 160 years because they appear to conflict with deeply held religious beliefs.
In economics, the argument about a designer is perhaps less explicitly stated, but no less bitterly fought. Tropes asserting the existence of shadowy figures—billionaires, corporations, governments—who really control the economic levers are well-known.
Relatedly, some assume that whether or not a designer currently controls economic phenomena, someone shouldcontrol them. They argue that with greater economic design, society would be better off and less chaotic; some group of individuals would be more prosperous; some moral goal could be achieved.
The biosphere and market economies seem designed because they are each complex but orderly systems. While those systems are not the result of design, they share a similar mechanism: in both cases, the systems propagate themselves—that is, they evolve—by continually producing knowledge.
Recently, a new fundamental theory of physics has emerged that provides a useful framework for thinking about knowledge. According to this theory, knowledge is information that, once instantiated, tends to ensure its own survival.
For example, consider competing theories about our solar system. The geocentric theory puts the Earth at the center of the solar system. On the heliocentric theory, though, planets orbit the Sun. Famously, the geocentric version failed to survive rational scrutiny, and so fell by the wayside. The heliocentric model, meanwhile, has remained standing.
The geocentric theory, therefore, was information that did not survive in the long run, and so is not knowledge. The heliocentric theory, however, has survived to modern day, and so is indeed knowledge (tentatively, always tentatively).
In the case of biology and economics, then, complex systems ultimately evolve by producing the time-honored information that constitutes knowledge. Evolution in biology and economics function slightly differently, but they are ultimately similar.
Biological evolution is any change in a gene pool over the change in time. A given gene typically comes in different strains, each of which is called an allele. Suppose a gene for blue eyes is embedded in the genetic code of all individuals in a population. If, over many generations, half of the blue-eye genes are replaced by a brown-eye gene, then the blue-eye gene and the brown-eye gene each comprise one-half of the total copies of the gene for eye color. The biological system has changed; evolution has occurred.
Economic evolution can be construed as the change in products and services offered in the market over time. A relatively recent example is the supersession of Myspace by Facebook. Myspace now takes up a fraction of the market share that Facebook currently holds, although the old social media platform has not (yet) gone completely extinct.
In economic evolution, novel products and services are not necessarily a better version of the old. Netflix provided a different product than Blockbuster, and yet the online service has contributed to Blockbuster’s downfall. The economy is vastly interconnected. Consider online news. News sources don’t just compete with each other for your attention — they also compete with a near-infinite number of other forms of time-consuming acts, such as ice-skating, reading, and gardening.
Biological evolution is primarily about genes — how some variants of a particular gene win out in a generations-long battle of survival of the fittest. But how are variants of a gene created in the first place?
Fundamentally, genes are composed of information, a code with the well-known genetic alphabet of A, T, C, and G. Random mutations change the code. Sometimes they change it in such a way that the gene functions differently, spurring a particular genetic variant.
If the resultant allele can spread at a greater rate than its variants, then it will survive at those variants’ expense. Environmental pressures, typically called selection or selective forces, are the final arbiter in deciding which alleles survive, and which go extinct. This is Darwin’s story of the biosphere, of how the magnificent biodiversity we see has emerged.
Those successful alleles encode information about the selective forces that act on it — that is, they encode the reason(s) why it outcompetes its alternatives. Since such genes contribute to their own propagation into the next generation, successful alleles are an example of knowledge: information that ensures its own survival into the future. None of the failed variants qualify, since they go extinct (and hence do not ensure their own survival)—much as the geocentric theory did.
The economy, meanwhile, evolves under similar mechanisms. It is not mutations that generate variation in market products, but human ingenuity. A person or people have an original idea, which translates into an innovative product or service to be sold on the market.
Entrepreneurs create some service or product hoping that consumers will buy it in a high enough quantity, and at a high enough price, that the entrepreneur yields a profit. If an entrepreneur fails to make a profit, and instead makes a loss, he/she has failed and will terminate the endeavor. Entrepreneurs that profit will continue to create the service or product. In the economy, it is the consumers are the selective forces.
In the case of entrepreneurial endeavors that fail to earn a profit, the informational structures that led to the final product are eliminated from the economy. For those profit-making endeavors, meanwhile, the information structure that is required to create the final product remains intact (tentatively, still!).
An information pattern (such as the design of the product or service, its function, and its production process) causes successful products to be created, which in turn reinforces the information structure that generated it in the first place. In other words, the information of how to create a profit-earning product ensures its own survival. It’s knowledge.
The biosphere contains organisms that interact in complex but orderly ways that seem impossibly ordered. Consider a flock of birds, or an ant colony. Each social organization emerges from the sum of the individuals that compose it. Yet, to borrow a commonly used phrase, all of this design has no designer.
The economy, meanwhile, exhibits many signs of emergent order that go utterly unnoticed by most of its participants. Division of labor—the fact that individuals specialize in particular modes of problem-solving—is practically a prerequisite for generating further wealth in an economy. And it emerged without any authority’s commandments.
The prices of goods coordinate people’s actions on the market. No one dictates what these prices must be. Rather, they emerge as individuals act — they buy, create, require, and consume resources and goods to their satisfaction.
The similarities of these organizations are not coincidental. Both the biosphere and the economy evolve over time through trial-and-error. Strains of information compete with each other, and only those that best reflect their respective selective forces survive. Both biology and economics successfully ensure their own propagation into the future by the creation of knowled