“The opening up of new markets,
foreign or domestic, and the organizational development from the
craft shop and factory to such concerns as U. S.
Steel illustrate the same process of industrial mutation-if I
may use that biological term-that incessantly revolutionizes the
economic structure from within, incessantly destroying the old
one, incessantly creating a new one. This process of Creative
Destruction is the essential fact about capitalism. “
- Joeseph Schumpeter
Πἁντα
ῥεῖ. Even though we have no record of Heraclitus ever
saying that, πἁντα ῥεῖ
- everything flows – has become the maxim of his philosophy - a
philosophy in which we can never step in the same river twice or
where justice is strife. Even rejecting everything else Heraclitus
said, he was able to put into proper perspective something that must
always be on our mind when thinking about, well, anything: Everything
changes with time, and the passage of time brings along with it
change that, poetically indulging in Heraclitus' concept of the unit
of opposites, is the great creator and destroyer of all. In order to
study complex systems like the economy over time, then we must take
into account how they are able to cope with change over time and how
by this process they are able to show design-like characteristics. To
do this, we cannot rely on self-organization alone, but we must have
recourse to the concept of selection
Self-organization is not
a sufficient explanatory explaining the harmonization and
coordination of complex systems with a changing world. Even if
self-organized entities, whether it be cells or firms, can come into
existence without selective pressures, they are surrounded and must
survive within a changing world. In order to fine-tune those entities
to the stresses and difficulties of survival. Selective forces are
needed in order to adapt the entities that have self-organized to
their environment, and to ensure that the population is dominated by
that which can thrive, rather than that which is doomed. Yes, complex
structures may very well be able to emerge without a designer via
self-organization, like molecular self-assembly, but
self-organization does not explain why populations are able to
survive over time.
This is especially true
for complex systems like the economy that are under the constant
tyranny of Heraclitean flux. In biological evolution, the selection
process operates very slowly, the holistic character of an organisms
adaptations, and the conditions of the environmental ecology that
determines the selective pressures upon organisms are relatively
constant. Living fossils do exist. The fishes of the order
Coelanacath, which had reached its current form just about four
hundred millions years ago, which were thought to have gone extinct
by biologists since the Late Cretaceous period just about sixty six
millions years ago until a specimen was found off the South African
coast in 1938.
In The Origins of
Order, Stuart A. Kauffman argues
that the existence of these living fossils like the order Coelanacath
is a strong piece of historical evidence that once species gain their
form via self-ordering phenomena, that selection cannot do much to
alter the self-ordered forms of species, that order exists despite
selection not because of it.
However, within the market-economy, evolution proceeds at a much more
rapid pace with much more demanding selective pressures than for
biological evolution. The demands of profit-maximization do not treat
living fossils within the economy very well, and even those business
practices that date over a century have had to continuously adapt
their practices to the demands of the world. As a result, Kauffman's
argument that selection cannot do much to upset the form of complex
evolutionary wholes is much less persuasive because it requires a
relatively constant ecology and a slow pace of selection.
Limiting ourselves here
to the social domain of evolution, if self-organization is the only
means for the emergence of order, then the self-ordering entities
must be able to deal with the problems that will bring and therefore
they must be very robust against change. Important to recognize here
is that all self-ordered creations must have non-anticipative
strategies against the random shocks that time will bring. As a
result, the only means by which a complex system can adapt to random
changes is by the selection of those self-ordered objects that have
“chosen,” a word that is often still must be used metaphorically
since even objects self-ordered by a human mind cannot be designed in
anticipation of all relevant future problems, After all, without
specifying a selective pressure at work, there is no means by which
entities that have self-organized will be able to survive over time.
There is simply no way of speaking about self-organization and the
survival of what has self-organized without invoking the concept of
selection over time.
Once self-organized
entities come into existence in society and time passes, bringing
change along with it, some of those entities will continue to exist
while some will dissolve into the dust. Even though change comes and
goes, the complex systems that are human societies have generally
endured. Moreover, they have generally thrived. This is especially
true for market-economies. With that come questions about the
adjustment of markets and how the overall health of the market is
able to thrive even though so many of the smaller pieces that make up
the market will ultimately fail. Markets do not do not adapt to
change simply by the existence of self-organized entities like firms
and stock markets. They adapt to change by the success of those most
able to foresee future conditions and the failure of those incapable
of foreseeing future conditions. Profit reigns supreme and, as Ludwig
von Mises pointed out in Human
Action,
the source of all profit is the prediction, by accident or design,
“the future constellation of demand and supply.”
After all, it is through the competitive process that the firms, to
take one example of a self-organized entity in society, most capable
of maximizing their profits and thriving through time survive while
those firms that are not able to are destroyed. Again, we see that in
order to explain complex systems through time, we need to recourse to
an explanation that has selection over time baked into it, and which
helps make it fuller.
Nassim Nicholas Taleb
has illumined the process by which complex systems adapt to change in
his book Antifragile by
arguing that a complex system can only benefit when its consituent
parts are able to fail. What he calls the “antifragile” are those
things in the world that benefit from variability, like how bones can
grow stronger when physically conditioned, and the “fragile” that
which does not benefit from variability like a porcelain tea cup,
easily broken by the slightest. Taleb argues that a complex system
can only benefit from variation if the individual components of that
system are themselves fragile, and can be dissolved by change leaving
only that which has lasted through the change. Returning to the
example of the last paragraph, the health of the markets and their
overall antifragility is only made possible by the fragility of
individual entrepreneurs. Taleb himself recognized this and
recommended in Antifragility that
there be a “National Entrepreneur Day” to commemorate the legion
sacrifices made by fragile entrepreneurs in order to secure the
greater good of an antifragile economy
Like
nature, the markets are red in tooth and claw. That which cannot
anticipate the future conditions of supply and demand bites the dust
while that which can remains and perhaps even prospers. Even though
the fragile within the system may be destroyed, the system is
benefited by the shocks brought about by variability since the shock
has eliminated features within the system that could not stand the
flux of change. Of course, no system is infinitely antifragile, so to
speak. After all, a large enough shock will be able to completely
eliminate a complex system in fell swoop, like an asteroid leading to
world-wide, mass extinction, so it would be more sound to say that
complex systems are antifragile up to a point.
Nevertheless, their antifragility highlights that we cannot explain
the adaptation of complex systems like the economy merely with the
concept of self-organization; instead, what is needed is a theory
that can explain the selective mechanisms by which those systems
change. And how they change is by change in the frequency of their
constituent parts, whether they are self-organized or not.
In
the end, self-organization simply cannot be an adequate explanation
for the adaptive nature of complex social systems since it cannot
take into account the change that is brought upon such systems by the
passage of time. We need selection over time for that. Only with the
concepts of variation, replication, and selection can we provide an
adequate explanation of how complex systems can more than simply
endure through time, but can adapt to the environment that they are
within.