Computing the Economic Problem: Two Logical and Evolutionary Models of the Market Process

Abstract

This is an essay about the evolution of wealth and the computations that economies, as complex adaptive systems, must execute if they are to successfully enable its evolution. Economies become wealthy when they accumulate multiplicities of knowledge and know how that are well adapted for solving consumers' most urgent problems of economic life. Although creative entrepreneurs consistently imagine novel bits of knowledge and know how, the factors of production that those bits can be encoded upon are scarce. All economies must therefore compute a peculiar decision problem, which economists have styled "the economic problem," of deciding which bits of knowledge and know how that are best adapted for solving the most urgent problems of economic life. I argue that the "market process" computes the economic problem by selecting the most valuable business-model designs within an ecosystem of competing business models. I offer a logical model that specifies the sequence of events by which an economy computes a given economic problem and selects the knowledge and know how well-adapted for solving it. I then model an economy's accumulation of well-adapted knowledge and know how, that is wealth, as the adaptive flow up a population of business models up a profitability landscape.