Is God on our side?

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This post is the first part of longer lecture, "Is God on our side? Economics at the borders of nature."

Introduction: The title's two meanings

This talk is called “Economics at the borders of nature,” and I mean that in two ways. The more obvious concerns the limits of what ecosystems are capable of supplying us with, those borders which we are at a minimum approaching, if we haven’t already crossed them some time ago. And I will address those borders, but rather toward the end of the lecture. First of all I’m concerned with a restructured conception of economics. I’m interested in understanding economics as a neighbor of the natural sciences, or even as a component of the natural sciences.

http://en.wikipedia.org/wiki/File:AdamSmith.jpg

The most famous statement of probably the most famous economist is the line about the invisible hand of the market. We don’t have to worry whether the baker is interested in our well-being or in what is good for us. We can let him pursue his narrow market interest and he will be led, as if by an invisible hand, to act in the interest of others.

When someone says, “God is on our side,” they mean that things must turn out well—after all, we want the same thing as what God wants. In the context of Smith’s hand, the very organizing principle of of the entire economy is human desire, even greed. And according to Smith, the universe is constructed in such a way that the following of our narrow, personal interests leads us to a condition of general prosperity. That is, God is on our side.

One could say that a market is a kind of Darwinian mechanism which operates on its own, without us having to do anything to make it work. It’s a machine for the selection of better, more desirable economic activities.

"... a machine for selection..."
http://commons.wikimedia.org/wiki/File:Gears.JPG

And it’s true, at a basic level a market uses the same three principles as Darwinian evolution of biological species. For the functioning of either a market or evolution, there must be:

• variation (diversity): firms, individuals, biological species must differ from each other
• differences in profitability: these differences among species and among individuals of a single species must influence the probability of survival and reproduction
• the ability to spread: these meaningful differences must have a way into other individuals, into further generations, to other firms or other economic activities.

But then we face the question, How did markets arise? And if we want to think about the market as a Darwinian mechanism, we should probably think about the economy as an ecosystem, which means we should spend some time thinking about how ecosystems work. And along the way, we’ll answer that question about the origin of markets.

Next: Ecology for economists