Economics: The interplay of evolution and intelligent design

By: Roger McCain

Posted: 10/17/08

I find it hard to fit myself into the recent controversy between "intelligent design" and evolution. As a deist, I'm persuaded that there must have been some "intelligent design" at the beginning, at the "big bang," with the constants of physics fine-tuned so that the resulting universe would teem with life and evolution. So I believe in both evolution and intelligent design - why the controversy?

But this column is not about religion. It is about economics. And, however evolution fits or doesn't fit into your worldview, the economic process is, in a broad sense, evolutionary. Many of our insights on this come from the great Austrian-American economist Joseph Schumpeter. Schumpeter was a committed anti-Marxist, but his ideas could not have existed without those of Marx, and his most prominent student, Paul Sweezy, was the most important American Marxist economist of the 20th century.

For Schumpeter, the key figure in economic evolution is the "entrepreneur," that is, the businessman-innovator, who tries new approaches without precedent in the economy. Some of these innovations will fail. Of course, innovators are likely to be creative and intelligent people who will do their best to anticipate and avoid failure, but Schumpeter observes that it is impossible for them to foresee everything, so every innovation is somewhat a stab in the dark. The market determines which innovations will succeed, and which will fail, and nobody can know that in advance. Indeed, some of the wildest innovations are the most important - as when Texas Instruments decided to try to make money on a useless idea from Bell Labs, called the transistor. The failures are the price society pays for those few brilliant successes. As for the failures, they have to die, be liquidated and left behind. It is in this sense that economics is evolutionary: the unfit innovations do not survive.

But intelligent design also plays a part in economics. What we know as "the gold standard" is a good example. After the Napoleonic Wars, the British economy and monetary system were devastated, and the British government called in a talented gentleman amateur economist named David Ricardo to design a new monetary system. The system he designed was a paper money system in which the issue of paper money would be limited by holdings of gold bullion - "the gold standard." Britain continued to use that system for more than a century.

My point is, of course, that now is a time when we need some intelligent design. I'm afraid the "rescue" plan Congress passed Oct. 3 will prove to be an instance of "stupid design." If we continue to stagger from crisis to crisis, rescue to rescue, without any clear vision of a redesigned economic system that really will work, then we cannot expect much good to come of it. Evolution can lead to extinction, and sometimes it does.

At the same time, we have to follow the example of the divine wisdom that guided the Big Bang, and design for evolution. Advocates of central economic planning want to have everything determined by intelligent design, down to the minor details. That's a very misguided idea. What intelligent design can accomplish in economics is to establish a framework within which real human beings, selfish and opportunist and spiteful as we often are, can try new things, nurture them if they work and discard them if they do not, in a progressive, evolutionary economy.

That principle actually has been pretty well understood by the "new Democrat" and "new Labor" consensus of the 1990s. Unfortunately, the new Democrat/new Labor governments seem to have bought the idea that deregulation and more discretion in markets would always be the way to improve the "intelligent design" of the economic system. It is easy to see in retrospect that the regulations can be the rope that keeps the crowd from the abyss. In that case, removing the rope is not "intelligent design." Instead, we need to fill in the abyss.

On the other side, in American politics, there are those who believe with Adam Smith that, "All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord." Unfortunately, Old Adam seems to have been mistaken. In 2008, there is nothing simple about natural liberty: what "establishes itself of its own accord" is a chaos of lobbyists, preferences and restraint.

So we arrive at the obvious question: which of our major parties will do a better job of redesigning our economy? Neither of them wants the job, but it will not be a matter of choice. This crisis will leave behind as much wreckage as hurricane Ike did; the wreckage will have to be cleared away. To whom may we look for intelligent design in doing so?

Roger McCain is a professor in the Department of Economics and International Business. He can be reached at op-ed@thetriangle.org.