In order to better study economics, I formulate an analogy between biological systems and markets and use real world examples to support the analogy.
A key component of this discussion is the formulation of an analogy between biological systems and market systems. The idea that such an analogy can be created is not all that new. Many of the same tools used to study market systems are used in biological systems as well. Game theory is one example. Indeed, the theory of biological markets already exists. In this theory, concepts such as the laws of supply and demand are utilized to explain behavior in biological systems. (Noë 2006) However, it is just as reasonable to reverse the order of the analogy and look at markets as if they were biological systems with organisms competing for finite resources and different species evolving over time based on various selective pressures.
But what’s the point? Is there any advantage to doing this? Yes; there are many. One issue with economic theory is that politics more than science controls the thought process of those studying it. The study of biology is far more immune to such political squabble. In addition, economics is a difficult study because, unlike many fields of science, it’s difficult or unethical to establish an experiment. Manipulating a market for the purpose of studying its impact is clearly not an acceptable way of studying economics. Manipulating biological systems, or even creating isolated systems is far easier and arguably is far more ethical. In addition, there is already a large amount of data available from the study of biological systems. This data and the theories created by them, can be brought over to the realm of economic study if an analogy were established.
What is a Business
The construction of our analogy begins with a discussion of businesses. A business is can be seen as analogous to biological organisms. But what is a business? This may seem fairly simple question to answer, but it is not. It may not be as complex a question as “what is life”, but it is similar in some ways. Depending on how we define a business, we may exclude some businesses or include those things which are not businesses. First, let’s look at what businesses do. They certainly provide goods or services. But would someone who volunteers be considered someone who does business? Probably not. Why not? Well, for one thing, they do not expect anything in return.
So we can start by looking at a business as any entity which provides goods or services to others in exchange for something in return. But then an employee would be considered a business as well. This seems strange. But, let’s step back for a moment and see if it really is all that strange. Let’s say that someone wanted me to develop a software package for them. As a contractor, I would be a business owner: a sole proprietor. So let’s say that instead of contracting to do a single project, I was contracted to create software for that company for an entire year and that I charged by the hour. Well, I would still be a business owner, right? Well, that is exactly what an employee does.
What makes the two sole proprietor and the employee different? They have different business models. So let’s now discuss business models. What makes one business model different from another? Since businesses provide goods and services in return for compensation, it is reasonable to look at what goods and services are provided, the method of producing and providing those goods and services, and the type of compensation that is requested. Furthermore, business models have evolved in the presence of governments, so how businesses interact with the government should also be taken into account.
While it is not entirely necessary to create analogs for everything that exists in biological evolution, the more reasonable analogs we have, the more testing we can do. So one question which arises is whether or not there is an analog for genes in market evolutionary dynamics. The answer is, maybe. Governments have constitutions and businesses have business plans, bylaws, and many other documents. However, what are these documents? They’re essentially various types of contracts. So we could possibly say that the analog to genes would be the defining sections of contracts: clauses.