This essay offers an unconventional but illuminating framework for understanding the global financial crisis by applying the principles of Darwinian evolution and natural selection. The paper begins by outlining Darwin's theory — incorporating Malthus's population growth model — and explains how competition for limited resources drives the survival of the fittest. It then maps these biological concepts onto the economic collapse triggered by the failure of mortgage-backed securities, arguing that the sudden restriction of available capital functioned like a resource bottleneck. The essay also examines government bailouts as a form of artificial selection, favoring institutions deemed "too big to fail," and concludes that competition and economic evolution are inevitable wherever resources remain scarce.
Not a day passed in the months following the global financial crisis without some related news story dominating the headlines. The situation remained the primary focus of all major media outlets and was also at the forefront of many individuals' minds. At the heart of this focus was the search for someone or something clear to blame for the sudden collapse of the global economy. That clarity, however, would most likely never fully emerge. The causes and effects of such a situation are enormously complex and can never be known with complete certainty.
That does not mean there are no useful ways to understand the situation. One way to view the issue is as an example — non-traditional, perhaps, but relevant nonetheless — of Darwinian evolution through natural selection. Before such a paradigm can be applied to an economic situation, however, a basic understanding of the principles upon which Darwin believed evolution operated is necessary. Darwin held that evolution describes how a certain organism fills a specific niche in an ecosystem over time.
Darwin, incorporating Malthus's theory of population growth into his own observations, believed that evolution took place over time through minor changes in each generation driven by natural selection. All members of a species in a given area enter into competition when the resources needed for survival are limited. Furthermore, Darwin theorized — drawing on Malthus — that populations would continue to grow until available resources were no longer sufficient to support them all.
It is at this point that selection takes over. Different attributes of given individuals within a population will confer greater or lesser advantages in obtaining food, defending against predators, and attracting a mate. All of these factors affect each individual's chances of passing on their genetic information and physical traits to the next generation. Over time, these small changes accumulate into evolution.
In short, evolution can be understood as a measure of how well the traits of a given individual suit the survival of their genetic material. Genes better suited to survival persist, while those less suited do not. Chance events can alter evolutionarily advantageous traits and can also cause population bottlenecks by severely limiting resources, meaning that only a small number of individuals with particular genetic traits survive to pass those traits on to the next generation. How this all applies to the current economic situation may not be immediately obvious, but it is actually a relatively straightforward application.
"Mortgage failure limits capital like a bottleneck"
"Bailouts as government-imposed artificial selection"
If resources — that is, capital — were not limited, companies would have no problem surviving. Of course, without limits on resources, there would be no need for companies at all, as everyone would have everything they needed. This is an impossible scenario, however. Resources are always limited, meaning there will always be competition and, consequently, evolution.
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