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One Analogy Can Hide Another: Physics and Biology in Alchian’S “Economic Natural Selection”

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Abstract

Today, Alchian's "Uncertainty, evolution and economic theory" (1950) is hailed by evolutionary economists as a most important piece, which resumed an evolutionary brand of theorizing in economics after the eclipse of the interwar period. On the other hand, Alchian's article is also cherished by standard economists who consider it to be a powerful defense of the maximization principle in the theory of the firm. Our examination of the early intellectual life of Alchian shows that it was his involvement in military systems analysis at the Rand Corporation that led him to reckon that uncertainty was a fundamental obstacle to marginal analysis. We then demonstrate that Alchian's economic natural selection is a statistical argument which, if phrased in biological parlance, owes its logic to statistical mechanics. This invites to reconsider the strong opposition usually made between evolutionist and mechanist modes of thinking.
ERIM REPORT SERIES RESEARCH IN MANAGEMENT
ERIM Report Series reference number
ERS-2008-083-MKT
Publication
December 2008
Number of pages
19
Persistent paper URL
http://hdl.handle.net/1765/14278
Email address corresponding author
clevallois@rsm.nl
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One Analogy Can Hide Another: Physics and Biology in
Alchian’s “Economic Natural Selection”
Clément Levallois
ERASMUS RESEARCH INSTITUTE OF MANAGEMENT
REPORT SERIES
RESEARCH IN MANAGEMENT
ABSTRACT AND KEYWORDS
Abstract
Today, Alchian's "Uncertainty, evolution and economic theory" (1950) is hailed by evolutionary
economists as a most important piece, which resumed an evolutionary brand of theorizing in
economics after the eclipse of the interwar period. On the other hand, Alchian's article is also
cherished by standard economists who consider it to be a powerful defense of the maximization
principle in the theory of the firm. Our examination of the early intellectual life of Alchian shows
that it was his involvement in military systems analysis at the Rand Corporation that led him to
reckon that uncertainty was a fundamental obstacle to marginal analysis. We then demonstrate
that Alchian's economic natural selection is a statistical argument which, if phrased in biological
parlance, owes its logic to statistical mechanics. This invites to reconsider the strong opposition
usually made between evolutionist and mechanist modes of thinking.
Free Keywords
evolutionary economics, statistical mechanics, Rand Corporation, Ronald A. Fisher,
Armen A. Alchian, theory of the firm
Availability
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The electronic versions of the papers in the ERIM report Series contain bibliographic metadata
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Journal of Economic Literature, (JEL), JEL Webpage
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Full-text available
Argument The heuristic value of evolutionary biology for economics is still much under debate. We suggest that in addition to analytical considerations, socio-cultural values can well be at stake in this issue. To demonstrate it, we use a historical case and focus on the criticism of biological analogies in the theory of the firm formulated by economist Edith Penrose in postwar United States. We find that in addition to the analytical arguments developed in her paper, she perceived that biological analogies were suspect of a conservative bias – as in social Darwinism. We explain this perception by documenting the broader context of Edith Penrose's personal and professional evolution, from her student days at Berkeley to her defense of Owen Lattimore against McCarthyism. We conclude that in the case under study at least, science and values were certainly intertwined in accounting for her skepticism towards biological analogies – insight we develop in the conclusion about today's relationships between biology and economics.
Chapter
The task undertaken in this paper will make better sense if I relate it to two familiar rationales for doing any work in the history of science.1 They are rationales, indeed, that are matched in doing the history of many things besides science. The first is that if there is no collective quest for critical history, then myths and legends flourish, so that we have to settle for Rusk’s version of Vietnam or Thatcher’s invocations of the Victorian era. The second is that the future is unavailable and the present transient, so that the past is the only long run accessible to us. If we wish to understand how something — science, the economy or whatever — goes over the long haul, it is to the past that we must turn.2
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RÉSUMÉ Depuis la parution, en 1950, du célèbre article d'Armen Alchian, il est devenu assez fréquent d'invoquer la sélection naturelle pour appuyer certaines conclusions de l'économie néoclassique. Toute sélection n'étant toutefois pas de type « darwinien », il importe de bien distinguer les arguments qui invoquent la sélection naturelle au sens strict et les arguments crypto-téléologiques qui s'apparenteraientplutôt à un évolutionnisme de type lamarckien. A l'aide de quelques exemples fictifs, dont deux sont empruntés à un essai méthodologique de Milton Friedman de 1953, il est soutenu que les économistes doivent choisir entre des explications prétendument fondées sur la sélection naturelle et des explications fondées sur le principe de rationalité. Plus généralement, il est montré en conclusion, à l'aide de deux exemples supplémentaires, que les explications reposant sur des mécanismes impersonnels et celles reposant sur des activités intentionnelles ne peuvent être invoquées concurremment.
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