Chapter

Complexity, Evolution, and the Structure of Demand

John Foster and Jason Potts

in Flexibility and Stability in the Innovating Economy

Published in print April 2006 | ISBN: 9780199290475
Published online May 2006 | e-ISBN: 9780191603495 | DOI: http://dx.doi.org/10.1093/0199290474.003.0005
 Complexity, Evolution, and the Structure of Demand

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This chapter argues that evolutionary economics should be founded upon complex systems theory rather than neo-Darwinian analogies concerning natural selection, which focus on supply side considerations and competition amongst firms and technologies. It suggests that conceptions such as production and consumption functions should be replaced by network representations, in which the preferences or, more correctly, the aspirations of consumers are fundamental and, as such, the primary drivers of economic growth. Technological innovation is viewed as a process that is intermediate between these aspirational networks, and the organizational networks in which goods and services are produced. Consumer knowledge becomes at least as important as producer knowledge in determining how economic value is generated. It becomes clear that the stability afforded by connective systems of rules is essential for economic flexibility to exist, but that too many rules result in inert and structurally unstable states. In contrast, too few rules result in a more stable state, but at a low level of ordered complexity. Economic evolution from this perspective is explored using random and scale free network representations of complex systems.

Keywords: complex systems theory; production; consumption; aspirations; innovation; economic evolution; network representations

Chapter.  9694 words. 

Subjects: Economic Systems

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