The evolutionary approach to economics has deep historical roots. Today, it comes in several varieties. Two discernible evolutionary traditions in the U.S. relate, respectively, to the “Old Institutionalism” with Thorstein Veblen as founding father, and to the evolutionary approach to industrial dynamics and innovation studies started by Richard Nelson and Sidney Winter with their 1982 book “An Evolutionary Theory of Economic Change”. Evolutionary approaches have also been applied to the economy by researchers in the Santa Fe tradition of complex systems research. In Germany, evolutionary economics is partly related to the Freiburg legacy in economic thought; it has a close affinity to research into competition and entrepreneurship, going back on earlier contributions, for example, by Ernst Heuss. In Romance language countries there is an affinity to concepts and ideas of the regulation school. Differences in nuances notwithstanding, all evolutionary approaches converge in their concern for understanding complex change in the economy. In this sense, evolutionary economics goes back to the classical tradition in economic thought that concentrated on growth and the relation between social change, social structure and the economy.
The heterogeneity of evolutionary economics is reflected in its illustrious intellectual ancestry which includes F.A. von Hayek, G.S.G. Shackle, Joseph Schumpeter, Thorstein Veblen, Nicholas Georgescu Roegen as well as Alfred Marshall, Karl Marx, Thomas Malthus and Friedrich List, to name but a few. Evolutionary concepts are pervading contemporary economics even if they are not always classified as evolutionary economics in its narrow meaning. Some of the evolutionary economists’ key concerns are shared by recent Nobel laureates in economics including as Douglass North (historicity of economic change), Daniel Kahnemann (behavioral science), Vernon Smith (experimental approaches), Thomas Schelling (frequency dependency) or Armatya Sen (normative framework). Several international associations are related to evolutionary economics, such as the International Joseph A. Schumpeter Society or the European Association for Evolutionary Political Economy. Dedicated journals include the Journal of Evolutionary Economics, Industrial and Corporate Change and the Journal of Institutional Economics.
At the center of evolutionary economics is the endogenous occurcence of novelty in economic systems. Evolutionary economists try to explain how such novelty emerges, how it propagates and how it crystallizes into new constraints for the further change of the economic system. Evolutionary explanations rely on a set of fundamental analytical assumptions:
1. Heterogeneity of agents: Evolutionary economics adopts ‘population thinking’ and rejects the representative agent approach underlying many standard economic models.
2. Variation, selection and retention: Most evolutionary models rely on a variant of the classical Darwinian variation and selection mechanism. A source of generation of varieties in the economy is assumed, which are selected under the constraints of scarce resources. From this a differential reproduction of the varieties emerges, which changes the composition of the population and hence, its average characteristics.
3. Uncertainty: Concomitant to true novelty is uncertainty which cannot be treated in probabilistic terms. Uncertainty means that the future is open to qualitative change and cannot be predicted by the economic agents.
4. Entrepreneurship: Economic agents act creatively. Facing uncertainty, they search for new solutions of the problems they face. Economic activity is an open learning process proceeding through a sequence of entrepreneurial conjectures, experiments and refutations of not-working problem solutions.
5. Non-equilibrium dynamics: Evolutionary models reject equilibria as reference states and investigate the behavior of systems far from equilibrium, in particular with respect to phenomena of self-organization.
Starting out from these basic assumptions, evolutionary economics adopts various interdisciplinary approaches and imports modelling techniques from biology and physics, such as synergetics, evolutionary game theory or population genetics. Further, evolutionary economics is also open to interpretative approaches and to cognitive sciences. With respect to biology, there is a strong interest in the variety of theoretical approaches towards evolution, in particular hierarchical selection theory, the theory of punctuated equilibria etc.Thus, evolutionary economics goes beyond a simple transfer of Neo-Darwinism into economics but maintains an autonomous theoretical stance.