The Economy is an Ecosystem, Not Like an Organism

Bertalanffy warned that we shouldn’t compare the economy to an organism, because that would lead to tyranny.

We see this mistake being made in an interview with David Sloan Wilson in Evonomics, where he argues that F.A. Hayek argued that the economy was like an organism. Wilson argues that Hayek is right, but that doesn’t mean the economy shouldn’t be regulated.

The problem is that Wilson — and to the degree Hayek made the organism comparison, Hayek — is wrong. The economy is nothing at all like an organism. It is like an ecosystem.

An organism has goals, like an organization does. Both organisms and organizations are goal-oriented. In social species, there are the same kinds of hierarchies within the group as we find in firms and government organizations. And the group also has goals, which relate to the ongoing survival of the individuals within the group and to which the individual members often submit, as that ensures their own survival.

An ecosystem does not have goals; they allow organisms to achieve their goals, that is all. Any given ecosystem is a result of organismal action and is not a result of any goals being set by any given organism, even as those organisms are trying to achieve their own goals, and using and responding to the ecosystem to achieve them. Similarly, the economy is a result of human (inter)actions and are not of human design. They do not have goals and cannot be given goals. The economy is an environment in which people act to achieve their goals, and in that striving, create the economy/ecosystem.

The economy/ecosystem is thus made up of goal-seeking individuals and organizations.

An individual organism can be controlled by some sort of outside regulator. We can bridle a horse, for example. But can we do the same with an ecosystem? Is an ecosystem improved if someone comes along and decides to regulate it — meaning, garden it? Now, it may be true that there are some things a gardener can do to improve things, such as removing invasive species or reintroducing a species that went extinct in the wild (like the California condor), but note that these are exceptional circumstances — I at least cannot think of a situation equivalent to the removal of invasive species from the economy. For the most part, trying to regulate some aspect of an ecosystem is going to have unforseeable and unintended consequences. The problem is that we can regulate, but we absolutely cannot KNOWINGLY regulate, meaning, we cannot know with absolute certainty that the regulation will have — and will only have — the desired result.

Putting a regulator in charge of an ecosystem — which, by the way, is less complex and therefore more predictable than an economy — would have devastating results on the ecosystem, as probably every ecologist would tell you. I have no doubt David Sloan Wilson would tell you. And yet, he makes mistakes about the economy he would never make about an ecosystem. And it’s precisely because he’s thinking of the economy as an organism rather than an ecosystem. In any case, supposing we put a regulator/gardener in charge of, say, the African savanna. What might he see fit to regulate? Well, he may notice that the elephants tear up trees quite frequently. Perhaps he would try to reduce the tree damage caused by the elephants by putting barriers around many of the trees, to regulate elephant access. What do you suppose would happen?

One of the features of the savanna is that it is a grassland spotted with trees. Without elephants destroying the occasional tree, more trees would grow on the savanna. The grasslands would become dry woodlands, with fewer and fewer open spaces. Leopards would be find with that, and lions would certainly adapt, but it’s likely that the cheetahs would finally go extinct without open grasslands to hunt in the way they hunt. The small, fast antelope they hunt would experience an increase in population, and the weaker ones wouldn’t be weeded out. The weaker ones would be more likely to get sick, or if they were sick, spread disease. The population increase would also result in depletion of resources — resources already being strained by the change from savanna to dry woodlands — and the boom would result in a bust, which would be made worse by the increase in disease. A bad enough bust, and you have another extinction.

I could go on and on, but I think you get the point. The ecosystem has changed. Could the gardener have predicted this? Not likely. He thought he was protecting a few trees, and he ended up with at least two extinctions on his hands. And probably a boom in leopards. Two species are hurt, and another benefits. This is what happens in a regulated economy. Is this economy better? Is it worse? Whatever else it is, it’s different, and it’s not what it might have been without the interference. The initial regulation did in fact determine winners (trees) and losers (elephants), but also had unintended winners and losers as well. This is the consequence of all economy regulations. A regulation is designed to benefit some economic actors at the expense of others. But the natural interactions taking place were sufficient to create a healthy system.

I will note that the naturally occurring ecosystem is not without regulations. It’s not just random chaos. But those regulations are internal to the system, are emergent from the interactions taking place within the system. The savanna is dry in part because of the lack of trees, which contribute to the presence of water in the air, which can fall as precipitation. The addition of a little more water to the air could tip the balance from semiarid savanna to moist forest. The rain forest itself could expand in Africa. So the system of plants that exist affect the rainfall, and the system of plants that exist are a result of the animals present, which are present because of the plants there. The entire system is self-organizing and self-regulating.

The economy is literally no different. Just because it’s a human ecosystem, that doesn’t mean we humans can control it and more than we can control a biological ecosystem. If anything, due to the fact it’s more complex, the economy is likely even less able to be knowingly controlled or even regualted.