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Evolutionary economics - a note

Hector McNeill1

The economist Thorstein Velben, in contrast to his contemporaries, asked, in 1919, "Why is economics not an evolutionary science?". This coming from Velben was an odd question since he was one of the only economists to provide the answer in his work, "Industrial and Pecuniary Employments" he pointed out the take-over of business decision making by financial interests well before the inevitable outcome of this process occurred in the form of the event of the 1929 New York Stock Exchange Crash.

Veblen's question in terms of conventional economic policy making, still remains unanswered. Over the last century we have witnessed the rise in financialization and short termism and policies devoid of any understanding of evolutionary concepts evidenced by increasing income disparity and declining sustainability of the planet; policies that are delivering an existential threat to humanity.

Ecological conditions for evolution

In economic terms the ecological conditions for an evolution that benefits human survival is one in which there is an equilibrium or dynamic balance between dependencies. In the primitive ecosystem the predator-prey relationship is one where if the dominant species begins to consume too much of its prey, the reproductive rate of the prey cannot keep up leading to relative decline in their numbers resulting in many predators fighting over food and several dying of starvation in spite of the fact they are considered to be the dominant species. Humanity is moving relatively rapidly in that direction with populations and purchasing power leading to declining accessibility of natural resource-based produce, including food, declining land carrying capacity, or ability to produce food, and pollution, including greenhouse gas emissions, having increasingly disastrous climatic impacts.

The 2019 Sustainable Development Report of the United Nations recorded the fact that there has emerged a negative correlation between so-called economic growth and income disparity, sustainable production and consumption and climate action. Since production and consumption makes up the whole economy, mankind faces a serious challenge.

It is not difficult to explain why this is happening. The foundation of macroeconomics is the centuries old process of monetary policy which was never moulded by participatory mechanisms of modern concepts of democratic public choice. I has always been a rolling short term tactic to maintain the predominance of a small wealthy and powerful elite. However, during the last 50 years, following an intensification of what Veblen had noted in 1920, financialization has taken on the form of a predominant predator. Thus since around 1980s following the slumpflation crisis, monetarism was released in a more intensive form as the post 1929 regulatory restrictions were removed by Reagan, Thatcher and Bill Clinton (See "The journey from 1971 to 2020 - the consolidation of financialization" ). As a result, profits have risen as a proportion of GDP while wages have fallen. Monetary policy has created a massive inflation in asset prices (land, real estate, precious, metals and corporate shares) as a result of increases in money volumes not going to investment for increased productivity in the goods and services sectors but flowing into asset markets. As a result investment and productivity growth have stalled and real incomes of wage earners have declined while the wealth of asset holder have risen dramatically. The rate of increase in asset values has meant sales to gain income have been compensated for the values of withdrawals. As a result the incomes of asset holders have grown at rates that exceed asset inflation and far exceeding inflation in goods and services markets, meaning asset holder real disposable incomes also rise at a very fast rate.

Financial ecology

It is very evident that monetarism creates a financial ecology that marginalizes the majority of the population limiting their income to the production side which is increasingly bereft of investment and ability to increase real output. This is doubly impacted because low interest rates have destroyed savings used to invest. As a result real incomes of the majority have fallen behind the those of a small minority. Since those benefiting from this scheme are those most likely to influence policy decision making through the political party funding process it is difficult not to equate this with the primitive predatory scenario. Looking at the results of the Report on Sustainable Development it is therefore not a surprise that there is a negative correlation between economic growth and the probability of human survival. Monetarism, in its current form is highly destructive and does not possess characteristics that support any notion of a long term basis for an evolution in the economy and human society towards one that creates the conditions for long term survival.

A follow up article will describe the contribution of RIO-Real Incomes Objective policies to achieving a better equilibrium as a foundation for an evolutionary economic policy geared to cancelling the negative correlation between economic growth and human survival.

1 Hector McNeill is the Director of SEEL-Systems Engineering Economics Lab.

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