The Economics of Identity and Creativity: A Cultural Science Approach [1 ed.] 1412811015, 9781412811019

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Economics Business Psychology

THE ECONOMICS OF IDENTITY AND CREATIVITY A Cultural Science Approach Creative Economy and Innovation Culture Series Carsten Herrmann-Pillath The Economics of Identity and Creativity aims to sythesize naturalistic evolutionary theory while discussing new developments in economics. The author’s approach reexamines fundamental assumptions about how a capitalist economy works, from the relation between producers and consumers to the functioning of intellectual property rights. In the creative economy, the author argues, identities merge with the flow of creative action. To explain these changes, he draws upon a range of theories from analytical philosophy to biology, and from economics to sociology. The first part of the book examines the role of language in the naturalistic approach to cultural science. Herrmann-Pillath draws on Darwinian evolutionary theory to map a concept of knowledge. Part Two offers a systematic approach to creativity and identity from the naturalistic point of view developed in Part One. Here the author builds a theory of creativity from the ideas of conceptual blending in the cognitive sciences. Herrmann-Pillath presents a theory of identity based on analytical philosophy, and looks at the problems in fixing the boundaries of an individual identity both in biological evolutionary theory and brain sciences. He takes the concept of identity through the current economic approaches, examining the distinction between social and personal identity. This fascinating interdisciplinary work provides a precise argument that the foundations of economics can be found in cultural science, and it has evolved to become the cultural institution at the core of the modern economy. About the Author Carsten Herrmann-Pillath is academic director at the East-West Centre for Business Studies and Cultural Science, and professor of business economics at the Frankfurt School of Finance and Management. He is the author of numerous works, mostly in German, and his research interests include evolutionary economics, international trade, economic transition, and economic methodology.

Library of Congress: 2010047969 Printed in the U.S.A. Cover design by Ellen F. Kane www.transactionpub.com

ISBN: 978-1-4128-1101-9

First Transaction printing 2011 Copyright © 2010 by Carsten Herrmann-Pillath. Originally published in 2010 by University of Queensland Press. All rights reserved under International and Pan-American Copyright Conventions. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without prior permission in writing from the publisher. All inquiries should be addressed to Transaction Publishers, Rutgers—The State University of New Jersey, 35 Berrue Circle, Piscataway, New Jersey 08854-8042. www.transactionpub.com This book is printed on acid-free paper that meets the American National Standard for Permanence of Paper for Printed Library Materials. Library of Congress Catalog Number: 2010047969 ISBN: 978-1-4128-1101-9 Printed in the United States of America Library of Congress Cataloging-in-Publication Data Herrmann-Pillath, Carsten. The economics of identity and creativity : a cultural science approach / Carsten Herrmann-Pillath. p. cm. Includes bibliographical references and index. ISBN 978-1-4128-1101-9 1. Economics. 2. Capitalism. 3. Economics--Sociological aspects. I. Title. HB72.H467 2011 330--dc22 2010047969

Dedicated to Yann Emil

CONTENTS INTRODUCTION ................................................................... 1 PART 1 The Creative Economy and the naturalistic turn in the study of culture and the economy .......................... 13 ECONOMICS, LANGUAGE AND THE CREATIVE ECONOMY............................................................................ 16 Evolutionary economics and the blind spot of economics: creativity ...................................................... 16 Incomplete conceptual transfers from biology to economics ...................................................................... 18 The two senses of naturalism .......................................... 19 Language: embedding minds in the world ....................... 22 Practising naturalism: towards an analysis of the Creative Economy ........................................................................ 25 The Creative Economy as a transformation of the creative economy ......................................................................... 28 NATURALISING KNOWLEDGE ...................................... 32 Holism versus atomism in the analysis of knowledge ...................................................................... 32 The embeddedness of knowledge: the case of technology ...................................................................... 35 Radical uncertainty and Arrow’s impossibility theorem about the optimal search for new knowledge ............................................................... 37 The principle of bimodality: all knowledge is physical .......................................................................... 40 We do not know what we know ...................................... 42 Externalism as the philosophical setting of cultural science ........................................................................... 45 Scaffolding rationality .................................................... 46

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Evolving agent identities and endogenous agency ........... 48 Naturalising knowledge means Darwinising knowledge .................................................. 50 BRAINS, NEUROMEMES AND EVOLUTION Darwinian principles of cultural science ............................ 52 Restart: holism versus atomism in cultural science ......... 52 Principles of generalised Darwinism ............................... 55 Wittgenstein naturalised ................................................. 58 From memes to neuromemes .......................................... 61 Imitation and neuromemetic reproduction ....................... 64 The hypercycle as generalised structural mechanism of evolution .................................................. 67 The ultimate consilience of Darwinism and cultural analysis ............................................................. 71 SIGNAL SELECTION, SOCIAL NETWORK MARKETS AND CULTURAL SCIENCE .............................................. 73 The creative industries as a laboratory case for cultural science .............................................................. 73 Social network markets .................................................. 76 All consumption is consumption of signs ........................ 78 The other dimension of Darwinism: signal selection ......................................................................... 81 The historical specificity of the creative industries........................................................................ 84 The universality of Darwinism and the embeddedness of the sciences ......................................... 86 PART 2 An externalist theory of identity and creativity in economics ...................................................................... 90

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FORMS, IDENTITIES AND THE ONTOLOGICAL CREATIVITY OF LANGUAGE ......................................... 92 Creativity and identity: conceptual companions .............. 92 A case in point: product innovation in business .............. 93 Organisational forms and identities ................................ 96 Form as intermediate theoretical concepts in evolutionary analysis .......................................................................... 99 The dynamics of emergence: external and internal selection ....................................................................... 103 The analytical inseparability of meanings and rules....................................................................... 108 New meanings are new things .......................................112 An evolving world, made from human actions ...............115 THE STUFF OF NOVELTY Blends, metaphors and the creative brain ................................................................. 118 The basic operation of the conceptual blend ..................118 Blending and the growth of knowledge ......................... 121 Performativity as ontological creativity of language ....................................................................... 123 The neuroscience foundation of blends and metaphors ..................................................................... 126 Blending naturalised: neural Darwinism ....................... 130 The world is part and parcel of the brain ...................... 133 Creating things with words ........................................... 136 Technological evolution proceeds via sequences of blends........................................................................... 139 Decentring knowledge evolution .................................. 142 THE BIO-LOGIC OF IDENTITY ..................................... 144 Identity is the foundational ontological concept ............ 144 Individuum est ineffabile ............................................. 146 The turn from essentialism to population thinking ........ 149

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The inexactness of the boundaries of the body .............. 150 The brain is a fragmented system of systems ................ 154 The extended brain and its two selves ........................... 157 The limits of knowing yourself ..................................... 159 Externalism and adaptation ........................................... 162 The evolutionary model of the individual ..................... 165 THE ECONOMICS OF IDENTITY .................................. 169 Game theory with identities .......................................... 169 Group selection, identities and language ....................... 172 From I to we ................................................................. 175 The Akerlof and Kranton approach to identity economics .................................................................... 178 Social identity versus personal identity ......................... 181 Anchoring the economics of identity in language analysis ........................................................................ 184 Identities are outside us: what it means for economics .................................................................... 186 IDENTITY, INSTITUTIONAL CREATIVITY AND THE CREATIVE ECONOMY .................................................... 191 Institutions as artefacts in the externalist approach to identity ......................................................................... 191 Institutions are observer-relative facts .......................... 194 Cognition and the evolution of money .......................... 198 Add externalism: blending the artefacts of money ........ 202 Neuromemetic foundations of the use of memory ......... 205 The market as an artefact .............................................. 208 Institutional creativity in the Creative Economy ...........211 REFERENCES .................................................................... 217 ACKNOWLEDGEMENTS ................................................ 241 INDEX.................................................................................. 243

‘I disbelieve in specialization and in experts. By paying too much respect to the specialist, we are destroying the commonwealth of learning, the rationalist tradition, and science itself.’ Karl R Popper (1982: 8)

INTRODUCTION The new paradigm of cultural science The title of this book is a provocation. Many economists will feel cheated after glancing through its pages. ‘Economics of . . .’ normally refers to applying core theoretical propositions and empirical methods of economics to a particular field, very often expanding the realm of economics. Thus, we have an ‘economics of crime’ or an ‘economics of the family’. This book does the opposite: it defines ‘economics of’ in terms of a non-economic discipline, namely cultural science. The reason for this audacity lies in my strong belief that there are two topics in the human and social sciences of foundational significance that have not and cannot be treated satisfactorily by economics as it stands. These are the topics of identity and creativity. Correspondingly, the title of the book signals two claims: first, that mainstream economics fails to explain the two phenomena of creativity and identity; and second, therefore, that we need to shift to a new paradigm, which is briefly outlined in this book. Yet, in a third twist of the argument, I end up with a surprising conclusion: standard

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economics continues to hold for a particular cultural artefact, namely, markets, and the correlated agent identities. Cultural evolution produces markets and their correlated agent identities, to which economic theories might apply conditionally. So cultural science transcends economics, clarifies certain foundations of economics and finally embeds economics as its overarching paradigm. In the end, economists may forget all that and return to their ordinary business, with one difference, however: the ‘economics of . . .’ formula can no longer serve to extend the scope of economics without limits. The foundations of economics lie outside of economics. What physics is to chemistry, cultural science is to economics. As regards creativity, the limitations of economic analysis are well acknowledged in economics. Though the frontiers of the economics of innovation have been pushed as far as possible, there remains an important residue. This is why and how novelty is generated. The cultural science approach to creativity explains it both as a property of complex networks consisting of individuals and artefacts, and a process that is triggered in the human brain. In both respects, traditional economics is transcended. In the first sense, creativity is seen as an irreducible property of a collective, the network. In the second sense, creativity goes beyond the model of ‘utility maximisation under constraints’. The only strand of thought in economics that comes close to this approach is the work of the so-called old American institutionalists, beginning with Veblen, and culminating in Ayres’s focus on culture. This tradition is marginalised in contemporary economics. Serious interest in the topic is only emerging recently in the context of evolutionary economics. The phenomenon of identity reaches even deeper,

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touching on the question of what the ultimate elements of economic systems are. Methodological individualism posits that these elements are individuals. But this leaves open the questions of what constitutes individuals, where to draw the boundaries of individuals, and how individuals perceive themselves as individuals. Economists normally avoid these questions in a deliberate attempt to free economics from any kind of psychologism, with the point of analytical perfection reached in the model of ‘revealed preferences’. But even in this case, a particular view of the individual is taken for granted, which is the individual-as-organism who is the reference point of those preferences. Viewed from the outside, this is by no means a necessary assumption, so it therefore needs justification. After all, even economists have introduced the notion of ‘community indifference curves’. These observations raise the problem of identity. The issue of identity is not a psychological one, as we shall see. It is an ontological one that needs an elementary philosophical treatment. That being said, classifying this book as a philosophical inquiry might be a characterisation that prepares the reader well for the things to come. Yet, my main aim is to develop a framework for cultural science by clarifying some foundational issues in economics. Cultural science is a new discipline that was launched at an international meeting of researchers from different disciplines in March 2008 at Queensland University of Technology. There is a convergence of viewpoints on its essential features, but my exposition clearly shows the marks of my individual identity. To begin with, cultural science is radically different from cultural studies, though it shares some themes. The first and obvious difference is that cultural science

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avoids political value statements and adopts an analytical and descriptive attitude towards culture. Of course, I am well aware that there is no value-free science, but there is a difference between the explicit statement of particular values and their use in cultural criticism, and a research program that tries to define the demarcation between positive and normative analysis as neatly as possible. The latter states explicitly that where values come in, these are not scientific statements, but religious, ethical or other statements. In most cultural studies, the exposition of those value statements is driven by explicit value statements on their own. The second difference is that cultural science adopts a naturalistic perspective on meaning. This has a connection to the cultural studies distinction between tacit and objective knowledge here, and the cultural studies claim to critically examine the social reality of power relations behind cultural constructions of society; but there is also a clear line of demarcation. This line runs along the claims of the autonomy and arbitrariness of meanings. Cultural science recognises the creativity of cultural activity, but at the same time understands that this activity is rooted in a biological capacity for culture, thus also obeying certain constraints and regularities. I call this naturalism. Naturalism is fundamental to cultural science in two respects. First, naturalism implies that all human activities stay in continuity with human biology, extending into the realm of human artefacts; and second, naturalism means that we can use methods and models of the natural sciences in order to understand and explain cultural phenomena. For example, models of complexity borrowed from physics can help us to understand the diffusion of cultural artefacts in human societies.

Introduction

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The methodological consequence of naturalism as a philosophical position is to adopt evolutionary theory as a general framework for cultural analysis, again, in the two senses highlighted previously. This does not entail the adoption of neoDarwinian reductionism, however, as in evolutionary aesthetics and related approaches. Quite the contrary: cultural science argues that the capacity for culture has evolved according to Darwinian logic, but has resulted in the emergence of culture as an independent domain, because this independence was functional in an evolutionary context. This capacity for culture is a part of the more general capacity for language. Thus, cultural science is closely affiliated with the analysis of language, in all senses, reaching from the philosophy of language to linguistics. Cultural science reflects the naturalistic turn in linguistics over the past three decades. At the same time, cultural science adopts a coevolutionary model, in which the evolution of culture is explained by the same kinds of models and mechanisms that are used in biology to explain the evolution of life forms, without claiming biological reductionism. It is important to emphasise that this homology does not result from the wholesale transfer of neo-Darwinian models (the so-called modern synthesis) into social and economic analysis, but builds on important alternatives to neo-Darwinism found within Darwinism, especially with regard to development. Cultural evolution is a process involving individual development, and this is the place where the notions of identity and creativity can be put into context. Finally, cultural science shares the interest of cultural studies in knowledge. But again, knowledge is seen in the light of naturalism. Knowledge is conceived as a conjunction of structures of ‘matter-energy’, that is, physical things, and meanings.

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Cultural science rejects the mentalist approach to knowledge that has dominated Western thinking since Descartes. This is the deepest reason why cultural science is possible in the naturalistic sense: there is no ontological break between knowledge in the sense of biological information (which is, basically, physical stuff, e.g. sequences of nucleic acids) and knowledge in the sense of mental content, as the latter can be reduced to regularities in the causal relations between individuals and the world. This is the externalist position in the theory of mind. Externalism implies that the human mind is not limited to the brain, but emerges from the interaction between the brain and its environment. In philosophical parlance, the mind does not supervene on the brain alone (which is the majority opinion), but supervenes on brains and external things, including other brains and artefacts. In particular, the circle of cultural science reasoning is closed by recognising that language analysis is an integral part of the externalist approach to the mind, because language is the main causal chain linking human brains into co-creative complex networks, or culture. For cultural science, language is not the holy grail of irreducible and contingent subjectivity, but an artefact in the physical world in which human beings interact. Now, externalism is the precondition for reconciling standard economics with cultural science, thus ending up with a peculiar version of evolutionary economics (which is the natural companion of cultural science in economics). Indeed, cultural science can overcome the dissent between mainstream economics and evolutionary economics. Following its premises, economic rationality can be conceived as a particular aspect of the human mind that supervenes on particular

Introduction

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systems of brains and their environment, in this case, markets. These markets, however, are not the abstract systems that economists normally have in mind, but the concrete markets of the real world. In the economic realm, individual brains interact with artefacts, such as the technological infrastructure of modern stock exchanges, and the other people who rely on these artefacts. A forex trader is not simply an individual, but a complex structure of a brain, a screen, a computer and other brains, which together enact what economists analyse as a forex market. For this system, abstraction can be a useful analytical tool, and so standard approaches of economics are finally vindicated. So far I have concentrated on the distinction between science and studies. But now I am in a position to present a definition of culture. In the early decades of modern anthropology, the definition of culture hovered between an emphasis on mental phenomena and a focus on artefacts. Cultural science presents a naturalistic definition of culture, which is based on the notion of the mind supervening on brain– artefact interactions. Cultural science: • investigates the causes and mechanisms of the

generation and diffusion of knowledge embodied in collectives of individuals and artefacts • describes and classifies the patterns that emerge in the evolution of those collectives • builds on a generalised coevolutionary interpretation of Darwinism. I claim that this approach completes the Darwinian revolution, in the sense that cultural science removes the notion of intelligent design from its final and seemingly invincible

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retreat; that is, the human mind. This move has already been announced by Darwinian philosophers, in particular, Daniel Dennett, in the context of analysing consciousness. But the approach has been incomplete until now, because its consequences for understanding human societies have not yet been fully elucidated, especially in the particular context of the different social sciences, such as economics. As I have emphasised already, this approach includes analysing cultural meaning in the traditional understanding of the term. But cultural science approaches cultural meaning as an emergent property of interactions in the material world. In an evolutionary framework, the classical distinction between meaning and function can be overcome. This is the main reason why cultural science is deeply related to economics: it stays in touch with a long tradition of economic thinkers who have argued that there is a relation between cultural phenomena and material aspects of human life. These theorists link culture with the basic facts of limited resources and the scramble for their control. This relationship was the idea that Darwin borrowed from Malthus. But just as biological evolution cannot be reduced to economics, so culture cannot be reduced to economics. Creative evolution overcomes certain material constraints in nature, thus ending up with an exuberant variety of life forms, although it can never overcome the ultimate barrier of limited resources. The same is true for cultural evolution as the growth of collective human knowledge. The analysis of culture, identity and creativity are foundational categories. They also underlie specific approaches and research issues in cultural science. This book is a contribution to a series (UQP Creative Economy + Innovation Culture) that concentrates on the creative industries, elaborating on

Introduction

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their theoretical foundations. Although my philosophical reasoning may seem to stray a long way from the more practical concerns of the creative industries, many of these arguments are useful for a better understanding of creativity in the context of markets and modern societies. The main proposition is that the creative industries can be best analysed within a cultural science framework, and that standard economics fails to understand some of their driving forces and possible consequences. The creative industries are an emerging sector in modern economies and an epiphenomenon of cultural change. This cultural change is taking place in the institutional framework of cultural production. The notion of cultural production refers to the generation and dissemination of collectively embodied knowledge by human agents, either organised in particular institutions (such as monasteries in medieval Europe or universities today) or embedded in elite networks (such as private buyers and sponsors of artists). In this context, knowledge encompasses all kinds of explicit and tacit knowledge, and it includes the playful generation of knowledge. Thus, there is no basic line of distinction between science and the arts, apart from institutionalised differences in the immanent definition of kinds of knowledge. Insofar as an artist wishes to communicate a message to the (possibly only imagined) audience, and the audience develops a common understanding of this message, this is just as much a part of collective knowledge as is Newton’s law of gravity. In the past, the production of collective knowledge was mainly embedded in institutionalised structures of social and political power, dominated by state and religious actors, with an intermediate sector of sponsorship and patron–client

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relations between independent cultural producers and social elites. The rise of the creative industries shifts the locus of control to complex self-organising systems of modern markets, thus individualising cultural production and consumption, which in fact implies that in many respects consumption and production are merged into one process. At first sight, this suggests that the creative industries should become natural objects of economics (whereas in the past cultural production was better dealt with by sociology and political science or, in fact, cultural studies). But that would leave out of account two considerations. First, the rise of the creative industries is accompanied by a process of institutional creativity in the production and processing of knowledge, and there is widespread agreement among economists that knowledge is a special good that is difficult to fit into the standard conceptions of markets. Second, the creative industries, and cultural production more generally, directly affect the identities of the agents who operate in markets. That is, once cultural production becomes marketised, the market includes a self-referential structure, through which the market process triggers a change of its conditions. Therefore, while the creative industries require economic analysis, economics, in turn, requires cultural analysis, for instance, of institutional creativity and reflexive identity. This book is an exercise in bricolage, matching the theory of creativity that I propose. I draw many theories together, from analytical philosophy, biology, economics and sociology. I hasten to add that my knowledge in these fields is limited. However, following Popper’s words (quoted at the beginning of this introduction), I justify my approach as scientific, because it is just as important to synthesise discoveries

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across diverse fields as it is to pursue the detail within each specialism. This book is therefore a contribution to Popper’s ‘commonwealth of learning’. The argument runs as follows. In the first part of the book I strike several chords of the systematic approach that I develop in the second part. I present some basic ideas, in particular, on the role of language in the naturalistic approach of cultural science, and how this relates to a methodological need to introduce a medium-level conceptual structure in between the common micro and macro branches of economics. Another major concern in the ground-clearing exercise is to generally define the concept of knowledge, starting out from the limits of economics in dealing with this phenomenon. A naturalistic approach to knowledge is based on two ideas. First, the notion of bimodality; that is, all knowledge correlates with physical structures. Second, externalism, which means that there is no such thing as mental content that is only accessible via introspection. Thus, I propose a non-Cartesian approach to knowledge as a cornerstone of cultural science. I provide the general elements of this approach, introducing the theory of ‘neuromemes’ as a special adaptation of Darwinian theory to cultural analysis. Part 1 concludes with the implications for the theory of the creative industries, with reference to a recent definition based on the concept of social network markets. I argue that social network markets are just special cases of the more general phenomenon of signal selection in evolution, thus completing a first round of building homologies across different domains of evolution. Part 2 offers a systematic approach to creativity and identity from the naturalistic point of view. The first building block is a theory of creativity derived from the theory of conceptual

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blending in cognitive sciences, which I relate to the neuromemetic approach developed in Part 1. I interpret creativity as ontological creativity, in the sense of bringing new things into the world. In an externalist theory of mind, this includes ideas that are always physically embodied, with language being the ultimate layer. This approach can be directly related to different applications, such as the theory of performativity currently in vogue in the social studies of finance, and Darwinian theories about technological change. The second building block is the theory of identity. I take identity as an ontological term, so that I take foundational theories in analytical philosophy as a point of departure. I then relate these theories to empirical problems of fixing the boundaries of the individual, both in biological evolutionary theory and in the brain sciences. I pull those threads together in presenting a model of the individual for cultural science. Based on this, I continue with an outline of the theory of identity, which takes current economic approaches as a point of entry, especially with reference to the distinction between social and personal identity. Identity emerges as a cultural category, which is a necessary reflection of externalism in the theory of mind. This implies, in particular, that identities are embedded in an institutional context. This closes the circle of the argument on the economics of identity, because by implication economic agents can be understood as agents with identities determined by their embeddedness in the institutions of the market system. This offers a precise argument why the foundations of economics can be found in cultural science. Finally, I demonstrate how all this works with a brief case study on money. Let us start the journey of this book.

PART 1 THE CREATIVE ECONOMY AND THE NATURALISTIC TURN IN THE STUDY OF CULTURE AND THE ECONOMY

The central methodological claim of this book is that an economic approach to creativity and novelty is only possible within the framework of cultural science. In order to explain the driving forces of economic progress, but also economic failure and disaster, we need to embed The central claim economic theorising into the overarch- of this book: only ing paradigm of cultural science. In the cultural science can first part of the book, I wish to clarify the give a proper account of creativity and meaning of this sweeping statement. identity in economics. In recent decades the definition of economics has become increasingly blurred, thus corroborating the famous dictum that economics is what economists do (Davis 2006). The definition that was valid for several decades, namely, that economics is ‘the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’ (Robbins 1932/45: 16), no longer encompasses the range of what economists investigate, or how they do it.

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Nowadays economics reaches from the theory of institutional change and politics on the one hand, to neuroeconomics on the other hand. It includes varying methods Economics is no longer from laboratory experiments to evolu- defined by the science tionary game theory. It is difficult to of scarcity, but mainly discern a clear boundary between eco- via the methodological nomics and other social sciences; and standards of mathematical increasingly even the sciences, given modelling and the many uses of economics in biology quantitative testing. (see e.g. Noë et al. 2001). This growing interdependence is no longer driven by the classical ‘economic imperialism’, because that was built on the notions of methodological individualism, optimisation and equilibrium, and the belief that these concepts might be extended far beyond economics (see e.g. the programmatic volume by Radnitzky & Bernholz 1987). Today, economics is becoming more diversified as methods and models are imported from other disciplines, in the same way that the original concepts of neoclassical economics were crafted along the lines of physical science. Thus, for many observers, economics is today defined by certain methods; that is, a high degree of formalisation and a strong reliance on quantitative testing, while there is a less constrained view of its conceptual essence. This being said, we also need to notice that there is one central question that is still difficult to deal with in the context of economics. This is novelty and its concomitant uncertainty, that is, the fact of the openness of the future, and the question of the roots of human inventiveness and creativity. Mainstream economics continues to largely neglect the creative dimension of the economy. Mostly this dimension is reduced to the question of how to set proper incentives for innovation.

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The problem of creativity is directly related to the problematic role in economics of a core concept The root of the in the human sciences and philosophy: difficulties that knowledge. So we start the journey of economics has with this book with a reflection on the nature creativity and identity of knowledge. Part 1 proposes a Darwin- lies in its limitations in dealing with the ian turn in the theory of knowledge. This fundamental concept enables us to construct a unified evolu- of knowledge. tionary framework for both foundational and applied research on the Creative Economy.

1 ECONOMICS, LANGUAGE AND THE CREATIVE ECONOMY Evolutionary economics and the blind spot of economics: creativity The problem of how to explain creativity and novelty in economics has been haunting economics for many decades, in differing shapes. Different responses have given rise to many alternative economic approaches, such as Austrian economics (e.g. Kirzner 1997 on entrepreneurship), different variants of Keynesianism focusing on radical un- Economics fails to certainty (Shackle 1972) and the many explain creativity followers of Schumpeter’s approach and novelty. Many dissenting streams of to economic dynamics (for a valuable thought struggle for survey, see Fagerberg 2003). None of conceptual supremacy, these approaches could finally challenge without success. so-called mainstream thinking. In recent times, efforts to deal with these questions have concentrated on evolutionary models and metaphors, mostly in the context of what is explicitly called ‘evolutionary economics’ (for surveys, see Nelson 1995 or Witt 2008). Although it is

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not easy to synthesise the competing evolutionary approaches in a few sentences, I think that major items include: • the explicit treatment of the heterogeneity of agents (on this and the next point see e.g. Metcalfe 1998) • the adoption of population thinking, including modelling approaches of population dynamics • the explicit use of Darwinian models of selection (e.g. Knudsen 2002) • the recognition of ontological multiplicity and levels of selection (Hodgson & Knudsen 2006). For example, whereas many standard economic analyses operate with the assumption of a ‘representative firm’, evolutionary approaches focus on populations Evolutionary of heterogenous firms, and they take economics is currently the firm as a possible unit of analysis the dominant alternative paradigm, that consists of sets of routines, and building on notions not simply as a ‘nexus of contracts borrowed from between individuals’, thus being partly evolutionary biology, irreducible to the individuals (Foss such as the population approach and 1993; Hodgson 1998). Beyond these selection. basic understandings, evolutionary approaches differ in terms of explicitly applying particular neo-Darwinian explanatory schemes (such as the genotype/phenotype model), or in specific methodologies, such as complex adaptive systems modelling. The latter is also an example of moving and fuzzy boundaries with other approaches, which nevertheless share a common epistemic interest, such as complexity theory (Markose 2005). However, most of these approaches still do not tackle the question of creativity and novelty in a direct way. This is

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because novelty is neutralised by the notion of the random variety of population elements, and because it is only seen as accumulating gradually through these elements’ competitive selection and Yet, even evolutionary retention. That is, there is no treatment economics is more interested in of the questions why and how particular analysing abstract innovations happen in the economy. formal properties of This might come as a surprise, but it innovation, rather simply means that evolutionary eco- than investigating the emergence of concrete nomics shares with standard economics and specific novelties. an interest in the formal structure of the processes, and it does not bother with results in terms of particular products, technologies and so forth. Industry studies simply serve as empirical data to test abstract hypotheses about the innovation process. Incomplete conceptual transfers from biology to economics Interestingly, this omission differs substantially from the original interests of evolutionary theory in biology, where the manifold of liv- So far, conceptual transfers from biology ing entities was and remains the main neglect the central research interest (for a programmatic role of intermediate emphasis, see Mayr 1982). Darwinism concepts in biological builds on the work of the naturalist, taxonomy, which lie at the heart of the which is mainly taxonomic and descrip- ongoing debate about tive. However, this characterisation the possible failure of hides the crucial role of intermediate gradualist selection theoretical concepts, which link empiri- models to explain genuine novelty. cal knowledge in biology with the purely formal analysis of evolutionary processes. These intermediate concepts relate to foundational issues in biology, such as the question of what constitutes a biological

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individual, how to define the notion of ‘species’ or where to locate the unit of evolution. Or, intriguingly, because this seems to coincide with the same question in economics: can the emergence of entirely new designs in living systems be explained by the standard gradualist model of adaptation and selection? The work of the naturalist obtains deep theoretical significance in current biological debates over macroevolution and the emergence of new biological structures (Gould 2002). Leading thinkers in biology reject the notion that true novelty can be explained by the pure gradualist population-genetic process of the so-called modern synthesis. This role of intermediate theoretical concepts is almost completely missing in modern economics, and it is rarely invoked even by evolutionary economists (for a notable exception, see Dopfer et al. 2004). Quite a few evolutionary economists have recently argued that evolutionary economics should adopt a naturalistic methodology (e.g. Witt 2003). In such a naturalistic turn, intermediate theoretical concepts would appear to be only one, albeit important, building block in a reconstruction of the ontology that underlies economic theories. In a different ontology, conceptual transfers from biology will also take another shape. The two senses of naturalism Naturalism does not simply mean that economists start to collect items such as different variants of chemical technologies or institutional variants of banking systems, which nevertheless might be interesting research issues (e.g. Aoki 2001). For example, recently some economists started to analyse industrial taxonomy based on the biological method of cladism, resulting in a system for classifying different technologies

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in car manufacturing (McCarthy et al. Evolutionary economics heralds 2000; Andersen 2002). a naturalistic turn Naturalism goes beyond this merely in its ontological analogical transfer of biological meth- premises, which will ods to economics. It refers to what Witt also assign a different (2008) calls the ‘ontological continuity methodological position to hypothesis’. The assumption of onto- intermediate logical continuity states that there is theoretical concepts. no principled rupture between human phenomena and other phenomena in nature. Yet, it still allows for the belief that the world of human beings manifests some unique features that are related to their capacity for culture and technology. These seem not to be directly reducible to any kind of underlying biological mechanism, as early sociobiology proposed. Naturalism goes beyond that. As a clearly defined philosophical position it claims, among other propositions, that the world is a physical unity. This means that all events are embedded in closed loops of inner-worldly cause and effect, that all things are things in the world and, in particular, that a cause always relates to an existing thing (Bunge’s panta rhei principle, 1977: 271; for a survey of naturalism, see Papineau 2007). This is by no means an innocuous position, because it implies two insights for economics. • First, naturalism eschews any Naturalism posits that the world is a physical kind of multiplying substances, unity, and that all in particular, the dualism of mind phenomena supervene and matter, which runs deeply on physical causes and through the Western tradition effects. of Cartesianism (for a classic statement of this, see Dennett 1991). The economic notion of rationality builds on this dualism, for it accepts

Economics, Language and the Creative Economy

• that rationality can be defined axiomatically and

hence is independent of empirical data about how the brain works. Thus, the very notion of the rational individual, endowed with a coherent and abstract utility function, replicates the Cartesian concept of the mind governing the body (which is homologous with the modernising or progressivist axiom that culture dominates nature). But naturalism definitively rejects this brain/mind, culture/nature dualism, both in the sense of understanding the internal workings of the brain/mind and in the sense of the causal interactions between the outside world and the brain/mind. • Second, and following from that, a naturalistic economics explains the meaning of knowledge in material terms. Contrary to Popper’s (1982) conception of the ‘three worlds’ (things, mental objects and the creations of the human mind), naturalism regards ideas as a part of the one and unitary world. This unified naturalistic ontology does not preclude the possibility of emergence. Emergence refers to the endogenous creativity of the world in the sense that processes that happen with matter-energy structures can give rise to new properties, thus continuously enriching the possible state space of the world (Bunge 1977: 97£.; compare Laughlin 2005). There is a general agreement today that this process can be most generally described as ‘evolution’ (Chaisson 2001; in shorthand, Herrmann-Pillath 2009a).

21

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This is a highly abstract argument, but it has immediate implications for the analysis of creativity and novelty in economics. In order to understand the process of creativity, we need to look at the actual workings of the human brain and body, and we need to understand how these interact with the world of things that are causally connected to them. Further, creativity has to be seen as ontological creativity, that is, the creation of things, bimodally conceivable as ideas. Language: embedding minds in the world A central phenomenon in this interaction between brain and world is language. From the naturalistic point of view, language is also a part of the one world, In a naturalistic hence deeply enmeshed with its causal approach to networks (Millikan 2005). But at the economics, language same time, language manifests emergent assumes a central position, because properties, which relate to the specific language is the main functions that become possible via lan- causal mediator guage. In particular, language enriches between brain and the one world ontology with possible world. However, language is totally worlds, which can have causal effects neglected in standard in the sense of causing human action economics. in the real world. Language has the emergent property of meaning, which in turn becomes a causal force in the one world. One pressing task for economics is to include language in its analysis of the creative economy. But surprisingly – the towering role of language analysis in most modern social science notwithstanding – language is so far a neglected notion and object of research in economics, only popping up in very special contexts (e.g. Rubinstein 2000), or, mostly, in the shape of the methodological perspective on the language of economics

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and economists (Henderson et al. 1993; McCloskey 1994). This observation strongly suggests that the difficulties that economics has with the notions of novelty and creativity might simply reflect this blind spot in its systematics, namely, the neglect of language. If we approach the problem of language from the internal perspective of mainstream economics, we can relate this neglect to the tension between behaviourism and formalism in the theory of choice on the one hand, and the notion of knowledge on the other hand. At first sight, the naturalistic approach to knowledge seems to concur with the recent upsurge of neuroscience approaches in economics, the so-called neuroeconomics (for surveys, see Camerer et al. 2005; McCabe 2008). This movement has met with considerable criticism and many economists have argued that this kind of research is totally irrelevant to economics (Gul & Pesendorfer 2005). This claim is based on the peculiar methodological status of the notion of preferences in modern eco- In economics, the nomics: the utility function is considered present tension to be just a mathematical description of between the behaviourist theory observed choices, and it has no impli- of choice and the cations whatsoever about the internal mentalist theory of workings of the human mind. In this knowledge corresponds sense, economics follows the precepts to the tension between behaviourism and the of pure behaviourism, which means emerging cognitive that it does not even embrace Cartesian sciences in the 1950s dualism, just being ‘mindless’, as Gul and 1960s. and Pesendorfer have put it. However, this methodological position exists alongside the straightforward treatment of knowledge as mental content in almost all economic theorising, in the sense of knowledge as a set of

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propositions of the kind ‘x knows that p’, most prominently in game theory (Samuelson 2004). Clearly, that understanding of knowledge contradicts the behaviourist approach in utility theory, which simply does not need to presume that preferences are ‘known’. The relation between the analysis of knowledge and the theory of choice in economics seems to be akin to the tension between behaviourism and cognitive sciences, which was resolved in favour of the latter in the 1960s, especially also in relation to language, with the Chomskyan counter-revolution as the spearhead. In economics, a parallel reaction happened with the outstanding, but also standing apart, work by Herbert Simon, the integration of which, to a certain extent, is still unfinished business (Albin 1998). The only way to resolve this tension is to adopt an emergentist naturalistic ontology in economics. My argument has arrived at a surprising twist: by adopting a naturalistic ontology, language emerges as a central analytical concern, which has long been the domain of the humanities, that is, the Geisteswissenschaften. I think that Introducing this move has tremendous potential for language analysis economics. A main task of this book is to into economics investigate the relation between language can clarify the role and economics, and to explore the poten- of intermediate theoretical concepts. tial of a naturalistic approach to language, based on a new approach to knowledge in economics. Both steps are highly specific, even though foundational. This is because in most areas of the humanities, language analysis is not always put into a naturalistic framework, but treats language as a mental phenomenon (as in hermeneutics). My position falls more in line with modern science-based linguistics (e.g. Ingram 2007). My central claim will be that the analysis of

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language and knowledge will lead us towards identifying an intermediate level of theoretical concepts that is necessary to build an evolutionary theory of novelty and creativity. Practising naturalism: towards an analysis of the Creative Economy Before I explore this line of thought further, let me relate it to the ongoing discussion about the creative industries, thus seemingly mixing up two topics of a very different degree of abstraction. The link has been provided, however, in our previous transition from the role of the naturalist in Darwinian theory to the foundational notion of naturalism. I will now walk this way back and raise the question: how and for which purpose can we conceive the work of the economist as a naturalist? As we shall see, the response implies a central role for language, again, so that the two levels of reasoning can be seen as mutually supportive. The economist as a naturalist would be a taxonomist of economic systems, among other topics (more in focus in Frank 2008). In the context of the Creative Economy, the question arises as to whether the ongoing expansion of the creative industries exerts a The economist as a naturalist is transformative force on the economic a taxonomist of system. Indeed, some observers have economic systems. claimed that the innovative process that flows out of the creative industries in the end exerts a transformative force on the entire economic system, sometimes dubbed ‘the Creative Economy’ (a term coined by Howkins 2001; in this series, see Howkins 2009). Now, this is the kind of question that makes sense within naturalistic economics, but is meaningless in the framework of the standard approach.

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This is because the standard approach focuses on an abstraction of real world economies, namely, formal models of markets that equilibrate demand and supply. Here, production is described via the concept of a production function, which allows the economist to concentrate on certain formal aspects of output alone, Established for example, product differentiation in economic theories lack intermediate terms of diverse consumer preferences theoretical concepts in models of monopolistic competition. to analyse phenomena This means that material aspects of pro- such as the Creative duction and output do not matter for the Economy. theoretical analysis of markets. This leap of abstraction was always regarded as a major methodological advancement in economics. It takes the same methodological step as the construction of a mindless theory of choice that we encountered in the previous section. The established theory of markets is a non-naturalistic one, even though it claims empirical validity with great success. This mainstream approach implies that intermediate concepts have been abolished, such that economics either adopts the microeconomic, that is, completely disaggregate analysis, or macroeconomic, that is, highly aggregate analysis. The historical turning point in this movement was the defeat of historism in the methodological battles of the late 19th century (Dopfer 2000). This micro/macro approach does not allow for the analysis of pattern formation that emerges from specific features of real world economic systems, such as particular features of technologies or political institutions. More exactly, if standard economics deals with the diversity of real world economic systems, it never does consider determinants that are specific to time and space (as is fundamental for

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biological taxonomy). Instead, it strives to analyse supposedly universal determinants of a distribution of real world systems along very few dimensions of properties, such as the ownership regime or the degree of state intervention (for a programmatic statement, see Djankov et al. 2003; on alternative views, see Herrmann-Pillath 2000, 2009b). On the highest level of abstraction, economic growth is conceived as a gradualistic accumulation of a knowledge-stock, without any concern for its structure and composition (as in Jones 2002; for a critical review, see Metcalfe 2001). The quest for a proper analysis of the transformative role of the creative industries can only gain ground by adopting a naturalistic approach to economics. The position developed in this book is that the creative economy is a universal feature of humanity, and that the creative industries are just a special expression under particular historical circumstances. This makes it appropri- It seems appropriate to distinguish between ate to distinguish between the ‘creative the creative economy economy’ as a universal phenomenon as a universal and the ‘Creative Economy’ in which we phenomenon and the live today. There is a tendency to assume Creative Economy engendered by the that innovation has only become a defin- contemporary rise of ing feature of human economies with the the creative industries. onset of industrialisation. To my mind, this reflects only the high speed of innovation, but not innovation as such. After all, groundbreaking economic innovations in agriculture stood at the centre of the rise of human civilisation. In particular, beyond technological innovation, all human societies have seen innovation in ways of life, symbolic expressions in the arts and poetry, and mystery, to name but a few areas. Certainly, it makes a difference whether a society explicitly values

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and supports innovation, as in our modern times, or whether it hails adherence to the authority of the past in valuing established norms and ways of life. But this does not change the observation that creativity and innovation are defining features of humanity. The Creative Economy as a transformation of the creative economy This universality of the creative economy does not imply that there are no unique features of the creative industries, which may have general effects as the reach and depth of creative industries innovations, processes and products penetrate the entire economy (Hartley 2008). In current approaches to the creative industries, standard economics stands out with the presumption that there is nothing special about this sector (for a survey of competing approaches, see Potts & Cunningham 2008). That is, there is a neat separation between technology and the economic system in terms of institutional settings of the market, in this case intellectual property rights. In the naturalistic approach, however, this independence is no longer a tenable assumption. Instead, we need to move on to intermediate theoretical notions that classify and systematise particular patterns of technologies and institutions, which evolve in historical time, and which are clearly separated into different classes of systems (e.g. Freeman & Louçã 2001). This converges with approaches in evolutionary economics that analyse ‘long waves’ and related phenomena. Thus, for example, the notorious category of ‘Fordism’ might be regarded as an incipiently naturalistic designation for a 20th century type of economic system that manifests a particular interaction between certain technologies of mass production,

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the spread of mass consumption and Theories of long waves diffusion of Western-style democratic in economics and related approaches to political institutions. Such a concept structural economic clearly does not make sense in the stan- evolution fit into a dard economic approach, but is widely naturalistic paradigm for analysing the used by heterodox economists. Creative Economy. Against the background of the naturalistic turn in economics, the significance of creative industries lies in the following: • Most observers of the creative industries agree that certain technological advancements lie at the heart of the new developments. These inTechnological novations affect the causal work- innovations trigger ings of the economy, because new forms of generating and entirely new network patterns diffusing knowledge, of communication, consumpembedded in tion and production are made institutional innovations and possible. For example, new technologies blur the distinction accompanied by evolving new patterns between the roles of producers of social life and users or consumers, which also implies that the innovative process on the production side might increasingly include consumers (Bruns 2008). • Corresponding to this development, there are new ways to discover, create and diffuse knowledge in the economy, which build on new material correlates of knowledge. This is akin to the role of the invention of printing for the emergence of modern economies, but introduces an entirely new form of collective process in knowledge creation, which, again, is mediated via the new technologies (Hartley 2008).

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• This form of knowledge creation causes strong

interactions with the institutional framework of the economy, hence changing the social structures underlying economic processes. In particular, there are strong forces that undermine the workings of the traditional system of property rights, triggering the emergence of a much more diversified institutional structure (Boldrin & Levine 2008). From the naturalistic perspective, this will result in substantial changes to the infrastructure of modern economies, comparable to the emergence of capitalism during the transition from medieval to modern times. • Finally, these changes affect individual ways of living (‘lifestyles’), and hence affect individual identities and network embeddedness. From the naturalistic perspective, economic systems correspond to forms of life, for example, material patterns of consumption, the organisation of work or patterns of demographic reproduction. Forms of life strongly determine the proximate adaptive functionings of the economy, especially in terms of ecological sustainability. This is what we call ‘cultural evolution’. As this brief exposition shows, a naturalistic approach to economics puts the creative industries and the Creative Economy into the perspective of the longue durée. The analysis of the creative industries has to be a historical analysis that distinguishes between the creative economy and the Creative Economy, with the latter referring to a possibly emerging

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new type of economic system, which stands in an unbroken evolutionary sequence with preceding systems and their transformations. The former term refers to the capacity of all economic systems to generate novelty; this also includes the rise of the creative industries as an example. Now, if we wish to define a methodology for naturalistic economics that also allows for this kind of historical analysis of the sequences of economic systems, what is our central theoretical category? I propose that it is the concept of ‘knowledge’. In this book, I The economist as a taxonomist of wish to relate the notions of knowledge, economic systems language and identity, setting up a meth- investigates the odological framework that builds on a growth of knowledge. set of intermediate theoretical concepts to analyse economic systems. Those concepts need to be designed to grasp the essential fact of institutional creativity that underlies all those transformations in human history. Over the longue durée, the object of study for naturalistic economics is the growth of knowledge.

2 NATURALISING KNOWLEDGE Holism versus atomism in the analysis of knowledge When discussing novelty and creativity, most economists have technological innovation in mind, at first sight. At the same time, they tend to understand technology as a set of ideas, that is, in a disembodied form. This is true both for mainstream and evolutionary theorists (Jones 2002; Mokyr 2000). Interestingly, this approach mixes mentalist and rei- So far, economics fied notions of knowledge in the sense mixes a mentalist that knowledge is first seen as a set of approach to knowledge ideas, which is a mentalist conception, with a notion of knowledge as a stock, but this is then regarded as a ‘stock’, hence an external which is put into action by human us- phenomenon. The ers, that is, in a reified sense. Compar- interaction between ing this economic approach with the users, ideas and artefacts is not various definitions and uses of the term explored in detail. ‘technology’ outside economics (e.g. Giere 2008), we realise immediately that the (mainstream) economic use leaves many relations in the triangle of ‘ideas–artefacts–users’ unspecified. In particular, it

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is not clear how ideas are separate from knowledge of how to activate and use them, which refers to the relation between the user and the presumed stock of knowledge. The relation between the knowledge-stock and artefacts seems to be openended, even though the notion of embodied knowledge is common in the theory of the production function. If we look at more detailed analyses of knowledge in evolutionary and related fields of economics, it is easy to see that knowledge cannot simply be treated as a stock. It appears to be a very complex phenomenon in which codified (explicit) and non-codified (tacit) forms of knowledge appear and in which knowledge is seen as being embedded in systems of creating, processing and applying knowledge, such as the so-called innovation systems (see e.g. Edquist 1997; Foray 2004). From this perspective, knowledge is a complex process. This process is linked with a manifold of structural determinants that reach, for example, from cognitive features of the human mind (as in the notion of tacit knowledge and the Rylean distinction between ‘knowing how’ and ‘knowing that’), across organisational characteristics of the division of labour (such as organisational routines), to the institutions governing knowledge production in research. Knowledge does not appear to be a clearly identifiable entity, but is an aspect of other elements that make up a system. In other words, knowledge appears to be a systems property, not an accumulated stock of single knowledge items. Interestingly, the problem of fixing knowledge ontologically is very much the same one as fixing the relation between genotype or phenotype and its environment. In biology, the common notion that the gene is a carrier of biological information (i.e. ‘knowledge’ in our parlance) is hotly contested

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(Maynard Smith 2000; Griffiths 2001; Rheinberger & MüllerWille 2007). In fact we are dealing with the old controversy over atomism versus holism, which is also prominent in cognitive science (Wilson 2004). One perspective is to reduce knowledge to a certain set of units The precise meaning carrying the knowledge, such as the of knowledge hinges genes being codified rules governing on the fundamental difference between the ontogeny of the phenotype. This atomistic and holistic is formally homologous to assuming approaches, with that there is a set of ideas governing atomism implying the use of technology, with the latter the reducibility of knowledge to just emerging as an epiphenomenon of knowledge-carrying the underlying knowledge. The other units, and holism perspective is that the genes as such do interpreting knowledge not carry knowledge at all, but are part as an emergent property. of the much more complex machinery of creating knowledge in the continuous interaction between the different parts of the reproductive systems. Thus, the process of transmitting and evolving knowledge includes not only the level of genes, but it also occurs, in the first step, at the level of cells in which the genes are interpreted and put into functioning. This systemic view may adopt different degrees of radicalism, even extending to the environment of a living system (OdlinSmee 1988; Oyama 2001). The real point at stake is the opposition between atomistic and holistic approaches to knowledge, with both positions assuming different shapes and arguments in different disciplines and discourses. I adopt the holistic perspective. In the context of our topic, I treat knowledge as an emergent property of the interaction between brains and their environment, which includes other brains, artefacts or institutions. This is what I call Darwinising knowledge.

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The embeddedness of knowledge: the case of technology This rather abstract position can be straightforwardly substantiated if we consider the crucial example of technological change and innovation. Technological innovation is an epiphenomenon of the underlying creative processes that take place on the social-structural and cultural level. At the same time, these creative processes are part and parcel of technological change: technology scaffolds creativity and works as an enabler and potential. Consequently, technological innovation can only be properly understood as a holistic phenomenon. This is evident if we consider the question of why the immense technological dynamics of the modern world only originated in certain places, which were, moreover, not the ones where such changes might have been predicted given the initial level of technological development. In Technology is a the millennium before industrialisa- holistic phenomenon, tion erupted in Europe, China and the because its evolution Islamic world were more advanced in is embedded in the evolution of technological development and levels institutions and of civilisation. The dispute about the cultures, and because reasons for this is raging on; however, it always involves the I think that most explanations relate to interaction between producers and users in social-structural or cultural factors (e.g. the diffusion process. Landes 2006). In other words, the mere potential for technological improvements, even if evident, materialises only in a certain social and cultural setting, and it seems that innovations in these fields run ahead of innovations in the technological realm. However, at the same time we can identify material conditions for the emergence of particular technologies, such as the fit between the emerging role of coal as a source of

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energy with steam engines and the peculiar geographical distribution of coal deposits in England, which differs radically from that in China, for example (Pommeranz 2000). In the light of these facts, it seems that technological potential evolves endogenously in structural patterns of the material world, and it is just triggered by individual human action. The different viewpoints about ‘prime movers’ fail to recognise that technology is a holistic phenomenon. There is no way to identify a prime mover for industrialisation; nor is there a main culprit to blame for it not materialising first in China. A similar conclusion can be reached when we notice that many economic views on innovation are producer-biased and do not take the users of technologies into consideration. As is well known from many studies about agricultural extension schemes, even the most obvious improvements in agricultural production may fail to disseminate in rural communities if social-structural and cultural factors stay against them (e.g. Bandiera & Rasul 2006). This applies to all technological changes, and in this regard even to the producers. The economic definition of innovation is clearly different from the notion of invention, because it includes the diffusion of an invention. An invention is an innovation only after it has been adopted by a community of users. This also holds for new production technologies. A technology is, in fact, a pattern of techniques, artefacts, pathways of diffusion and structural configurations of users, and it cannot be reduced to a set of ideas as technological knowledge underlying a highly aggregate production function. Clearly, this is nothing new to sociologists of technology (Oudshorn & Pinch 2008), but is still only fully recognised in parts of evolutionary economics (e.g. Cimoli & Dosi 1995).

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But why is this so? Given our pre- The methodological dilection for atomistic explanations in reason why knowledge can only science (compare Wilson 1998: 58ff.; be approached in Baeyer 2003: 11ff.), I think we need to holistic terms is present an argument for why, even if we rooted in the role of seem to be able to provide an atomistic radical uncertainty in knowledge evolution. description (such as a single law in physics), knowledge cannot be conceived of as an ‘atom’ in our real world and unified ontology. Radical uncertainty and Arrow’s impossibility theorem about the optimal search for new knowledge Looking at human technology, the main reason for rejecting atomistic conceptions of knowledge is that all innovations take place under radical uncertainty, or under a state of ignorance, corresponding to the notion of ‘blindness’ in Darwinian approaches to novel variants (Campbell 1987). If we abstract from the notion of physical technology, what counts is the emergence of new knowledge. But how can people really know whether new information is also new knowledge? They operate in a complete darkness, and there are many stories about the misperception of technological potential even by experts, which sound funny today, but simply demonstrate the high degree of ignorance that correlates with the evolution of knowledge. The same thing, of course, happens today when we talk about hypes and depressions over newly emerging technological wonders. Nobody really knows today how the electric car will eventually work on a large scale at some time in the future. The problem of ignorance is the central one in separating standard approaches in economics from the approach

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that I am going to present (compare The fundamental issue Hutchison 1977). The limits of econom- in knowledge evolution is the uncertainty ics, as it stands, are the points where resulting from our we transgress the boundary between ignorance about the the known and the unknown (for a sys- future value and tematic approach, see Herrmann-Pillath significance of novelty in the present. 2002). The classical argument on this has been presented by Kenneth Arrow in the context of discussing the role of the market and the government in generating new knowledge (for a survey of the related discussion, see Foray 2004: 7ff.). Arrow argued that there are fundamental limits to markets because it is not possible to optimise the unknown. Although the argument is weak with regard to justifying government intervention (for which it was originally designed), it is strong in our context. More specifically, can we optimise the search for new knowledge, which is uncertain today in the Arrow presented the radical sense that we do not even know principled argument the set of future possible states of the against applying world, and so we cannot find a workable standard economic models to knowledge, definition of risk? We cannot, because implying the limits of we would need to measure our oppor- markets in the process tunity costs for continuing our search. of generating new Lost opportunities are unknown, by knowledge definition, in this setting. So we cannot apply optimisation calculus. The same argument applies for market exchange over knowledge: many items of knowledge have the property that once they are made accessible at all, they become public goods. If I wish to buy knowledge that I do not know, how can I fix my reservation price? But if I get the necessary information, I already know it, so why should I pay?

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Arrow’s argument is certainly not relevant for the crude markets-versus-governments dichotomy, because governments have no special access to knowledge that is not already available in society and hence also in markets. But the argument clearly implies that standard economic models cannot deal with new knowledge in principle. This further implies that standard economic theorising about innovation necessarily fails to include what are possibly the most important determinants in knowledge evolution. Over the course of his career, the problem of radical uncertainty has led another Nobel laureate of economics, Douglass North (2005), to adopt the view that culture and social structure are all about dealing with uncertainty and ignorance. In other words, knowledge is always a double-sided coin, pointing towards the known and the unknown at the same time, and therefore it can only be viewed properly if we analyse not only actions and consequences resulting from the known, but also those from the unknown. The role of culture and social structure is to fix our expectations about the future, and therefore to make reasonable action possible. I assign Arrow’s insight to the status of one of the ‘impossibility theorems’ in economics (cor- The economic theory responding to a similar role of those of knowledge builds theorems in physics, such as on the on the fundamental impossibility of superluminal speeds, impossibility theorem that it is impossible or the impossibility of perpetual motion, to define a measure of see Smolin 2006: 8ff., or Bub 2006: scarcity across a state 88ff. on Einstein’s distinction between space of unknown constructive and principled theories). states, and therefore it is impossible to It is impossible to define scarcity, define optimal paths and hence prices, over a state space of searching for new with possibly infinite unknown states, knowledge.

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and it is hence impossible to define an optimisation procedure over the search for new knowledge. This impossibility theorem lies at the heart of my attempt to embed economics into cultural science. This amounts to a philosophical radicalisation of North’s position: the economic theory of knowledge needs to be built on externalism in cognitive sciences, epistemology and the theory of mind. The principle of bimodality: all knowledge is physical Adopting an externalist approach to knowledge evolution represents a radical rupture with the Cartesian tradition in economics. Externalism in economics follows externalism in epistemology and cognitive science, where it is a contested yet common proposition (for a survey, Externalism posits see Schantz 2004a). Externalism posits that knowledge that knowledge supervenes on physi- supervenes on mattercal structures that extend beyond the energy structures of brains of individuals. This corresponds brains and external entities. with recent attempts in evolutionary economics to develop a ‘principle of bimodality’, which states that the ontology of evolution is monistic in terms of substance, but dualistic in terms of The ontological modes of existence, that is, the matter- principle of bimodality energy mode and the ideational mode asserts that all (see Dopfer 2005a, drawing on his entities can be seen earlier work in the 1990s; Herrmann- as matter-energy structures or Pillath 2001). Externalism converges ideational structures. with the current trend in physics to conceive of physical phenomena in terms of evolving information (Chaisson 2001; Baeyer 2003; Lloyd 2006). In the context of economics, physical structures are not only lifeless

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material things, but include, in particular, structures of networks of human interaction. Accordingly, there is no difference between knowledge accumulating in human beings and knowledge accumulating in the world. Both take place in tandem with the evolution of structures of matter-energy. That means, for example, if we wish to understand the evolution of human knowledge, we must look at the interaction between the brain as a matter-energy structure and external structures of matter-energy that relate to human action. Take a bicycle, for instance: riding a bike implies that my brain operates in a complex way to coordinate all the necessary actions to keep balance and get the bike running. This knowledge is only partly accessible to consciousness, and, hence, rational deliberation. It mainly resides in complex parallel processes in many parts of the brain. However, the bike as a structure of matter-energy also contains a part of the knowledge necessary to run a bike. This is because the peculiar construction of the bike is the result of an accumulation of trials and errors as well as explicit engineering, which have ended up in a design that corresponds most efficiently with the inner organismic mechanisms. The two systems, the brain and the artefact, are deeply related to each other, because the artefact triggers actions that, in turn, feed back on the working of the artefact. In current cognitive sciences, the notion of the ‘extended mind’ has been crafted to denote this inextricable relationship (e.g. Sterelny 2004). This notion posits that the cognitive functioning of the brain essentially relies on external entities, in particular, evolved artefacts. From that perspective, human knowledge is something very different from knowledge in the Cartesian sense. This is what I call the completion of the Darwinian revolution:

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decentring knowledge, just as the Copernican revolution decentred the world, and Darwin decentred nature by demolishing the idea of rational design. Now, the same holds true for human knowledge. In the naturalistic approach Eschewing the to knowledge, knowledge is no longer Cartesian concept of something that is related to an epistemic mind and knowledge completes the subject, namely the Cartesian mind, but Darwinian revolution. knowledge is a process that is embodied in evolving matter-energy structures, following the principle of bimodality. I have proposed to call this non-referential knowledge and our standard conception of knowledge referential knowledge, with the former being the more general, encompassing term (Herrmann-Pillath 2002). Referential knowledge inheres in relations between an epistemic subject and an object, and it is accessible to reflective knowledge, that is, ‘I know what I know when I ride a bicycle’, in the sense of explicit, codified knowledge. This differs from non-referential knowledge, which might consist of ‘I know that I know how to ride a bicycle’, but also includes the possibility of ‘I do not know what I know if I know how to ride a bicycle’, that is, tacit, noncodified knowledge of which I know the result but not the content; and even ‘I do not know that I know how to solve complex problems of physical mechanics when riding a bicycle’. In the naturalistic approach to knowledge, the latter statements are seen as covering by far the largest share of knowledge that is relevant to human action, as compared with the role of purely referential knowledge. We do not know what we know Indeed, for the Darwinian turn in knowledge analysis and for the distinction between externalism and internalism, our

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reply to the following question is essen- From the externalist tial: do we accept or reject the thesis that viewpoint, referential knowledge is only ‘a person who knows that p also knows a subset of the that they know that p’ (the so-called much larger set KK-thesis, see Schantz 2004a)? This of non-referential thesis has almost never been doubted knowledge. in Western epistemologies, and certainly underlies the notion of knowledge in most economic analysis. If we adopt a naturalistic and, more specifically, an externalist approach to knowledge, then we submit that the normal case is that a person who knows that p does not know that they know that p, and that knowledge about Externalism posits knowledge is a very special case of ref- that knowing that p erential knowledge, which itself needs does not necessarily imply knowing to know to be explained within the externalist that p. paradigm (as an example of related philosophical discussions, see Dretske 2004). The externalist account of knowledge states that knowledge is about a regularity in a causal interaction between two different processes that are linked up in a properly functioning system. There are two possible venues where such a system can come into existence: one is design, the other is evolution. In the first case, it is straightforward to think of knowledge in terms of functions. If somebody sets up a machine with some regulatory device, this device can be seen as embodying knowledge about the environment in the case of proper functioning, such as a device to measure temperature (Dretske 1995: Chapter 1). This corresponds to a conceptual distinction in information theory, where information that carries semantic content further differentiates between the cases, first, of information without an informed subject (receiver of

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a communication process), and second, information without an informed producer (sender of this information) (for a survey, see Floridi 2003a, 2007). This can be related to Bateson’s (1979) famous definition of information as a ‘difference that makes a difference’. It is easy to see that if we look at difference in terms of a process in time, Bateson’s definition does not refer to mental content or propositional knowledge at all, but only to a systematic interdependence between changes of states in the world. Correspondingly, we can see knowledge as an aspect of systems interactions, but not as a mental state. In the externalist approach, there is no principled difference between the human brain and a machine designed for a special purpose. Mental content emerges as an epiphenomenon of the proper functioning of brains. Proper functioning, however, is not defined in terms of design, but in terms of evolution (Dretske 1995: Chapter 5). This marks the basic difference of externalism from earlier versions of materialism in Western philosophy, because here we move onto Knowledge is a another ontological level. It is impos- property of proper sible to assign functioning to a brain systems functioning, without considering the entire evolution- emerging from an evolutionary process. ary process that has resulted in its current workings. Knowledge is an aspect of a particular state of that process, but not of the brain as such. This conceptual difference has been highlighted in many earlier clarifications of the notion of biological information. The information presumably stored in the genotype cannot be interpreted semantically unless we reconstruct the entire sequence of systemic interactions that ended up in the peculiar matter-energy structure that we observe now, at a particular point of time and space (Küppers 1986: Chapter 5).

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Externalism as the philosophical setting of cultural science As long as we talk about biological aspects of human existence, this radical viewpoint may be even acceptable today, given our increasing understanding of the evolutionary foundations of many human behaviours and attitudes, which – at least partly – can also be described as a sort of knowledge. But many people will still reject the thesis that even what we can access introspectively as mental content, that is, our ideas, thoughts and beliefs, actually has to be analysed on externalist terms. Externalism posits: • First, that mental content is just Mental content is an aspect of proper a special aspect of more general causal interactions between functioning in physical brain–environment brains and their environment, interactions. and hence cannot be reduced to states of the brain alone. • Second, that the meaning we associate with mental content is a reflection of the proper functioning of the system in which the brain is embedded. • Third, that this proper functioning includes the special cognitive mechanism of reflexivity, which is made possible by the evolutionary emergence of language. When we leave this abstract level of epistemology and turn to the more mundane level of the empirical analysis of the systems in which human beings are embedded, particularly the economy, I submit that the exter- Cultural science is nalist approach to human knowledge a specification of externalism in the boils down to the cultural science para- analysis of evolving digm. Cultural science explains human human knowledge.

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knowledge in terms of naturalism and externalism, and it therefore uses an evolutionary paradigm to investigate the generation, diffusion and maintainance of human knowledge. In economics, this approach has been presaged by Friedrich von Hayek (1952; 1979: Epilogue). In particular, Hayek founded his approach to knowledge on his theory of the human mind, which builds on a connectionist theory of the brain, which is purely physical in ontological terms. Further, he emphasised the scaffolding function of culture for individual knowledge. It follows that this is only a partial aspect of the entire process of knowledge evolution, which takes place on different levels, in particular, the biological and the cultural. The strange position of Hayek in the history of economic doctrines raises an interesting question about the relation between externalism, evolution and the standard economic model. On the one hand, Hayek differs considerably from standard conceptions of the economy, as far as foundational notions are concerned. On the other hand, with regard to applied economics and policy issues, he is a market purist. Naturalising knowledge and introducing the extended mind hypothesis resolves this apparent conceptual tension. This is because markets can be seen as external knowledge systems, that is, a special aspect of the ‘extended mind’ phenomenon. Markets as an outcome of cultural evolution are part and parcel of the knowledge structures that underlie individual action in markets. Scaffolding rationality To begin with a surprising step, externalism implies that we can even revive more traditional notions of economics. This

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is because we clearly distinguish between human action and human knowledge, and we therefore make visible the scaffolds on which human action is based. In other words, we may define economics as ‘the science that deals with referential knowledge in settings of goal-oriented behaviour An externalist under scarcity’, thus reinstating Rob- approach vindicates bins’s (1932/45) definition. This is just traditional economics. what economics was all about until more The standard notion of rationality is recent times, and it is enshrined in the seen as an emergent methodological guideposts of rational property of particular choice and individualism. But we do knowledge structures not claim that this suffices to explain that evolve in particular contexts. human action and its outcomes, because the very notion of ‘rationality’ has to include the scaffolds, that is, an explicit analysis of knowledge. This is the task of cultural science. More specifically, embedding economic explanations into a cultural science framework means that rationality cannot be reduced to mere formal principles, but always has to be seen as embedded rationality. There have been different approaches to this, such as the contextualisation of rationality, and, even within economics, the increasing importance of ‘frames’ as a conceptual correlate to rational choice (Gintis 2006; Salant & Rubinstein 2008). However, cultural science radicalises these approaches by adopting an externalist approach to rationality, such that it denies the very possibility of distinguishing between rationality ‘within the brain/mind’ and the embedding market structures. This approach boils down to the essential category in this book, which is identity. There is no rational agent without an identity, and identity reflects the complex workings of

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the interactions between human individuals and their environment, coalescing into structures of knowledge. This is the point where cultural science directly implies a foundational change in economics, and I would even say this is the only change that is sufficient to define the relation between In analysing economic cultural science and economics. This is action, cultural because other hypotheses and proposi- science treats the tions of economics can be maintained, as category of identity as fundamental. long as they deal with a special kind of The identity human artefact that makes up markets, reflects structures for instance, money, stock markets or of knowledge in prices. From that perspective, econom- individual/system interactions. ics is about economic systems, and these are themselves cultural artefacts. It is perfectly possible to analyse an economic system independently from the individual, in the same way that it is possible to analyse the functioning of a car without analysing the driver. However, the real economy and its workings are like the traffic, which includes both drivers and cars. A fully autonomous economic explanation concentrates on economic systems and individuals with the identity of a rational economic agent, with the latter defined via the patterns of individual actions that maintain the proper functioning of the evolved market structures (for a related argument, see Ross 2005). Evolving agent identities and endogenous agency An agent identity is a structure that emerges from the interactions between brains and environments, which include both artefacts and other human beings, making up complex networks of communication, perception and interaction. There is no way to regard the individual as an external anchor of

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economic explanations, as is maintained in consumer theories built on stable preference functions, or in social contract theories starting out from the autonomous individual. An identity is a crossing point of complex interactions both synchronically and diachronically, and it defines the individual as an agent (White 2008 proposes a similar approach). In current social theorising, the position that comes closest to this is actor-network theory (ANT) in sociology (see Latour 2005). The conceptual link between the notion of identity and ANT is the concept of the actant in the In social theory, latter. In standard economics, the agent actor-network theory is an individual who can mobilise a cer- is congenial to cultural science, as it posits tain set of referential knowledge items that agency is a to choose among actions. In contrast, dynamic property of ANT posits that the agent—the actant network interactions in ANT terminology—is the result of that include individuals and things. a confluence of dynamic network relations, with ‘networks’ understood as fluid associations, but not as fixed structures (see also Callon 2008). ANT distinguishes between ‘intermediators’ and ‘mediators’. An intermediator is just a physical linkage between network loci that does not change anything in their relation beyond simply making the connection technologically possible. For example, if I copy a letter and give that to another person, the copying machine is an intermediator. However, ANT states that in the vast majority of network relations the media of the connections are mediators, which means that they play an active role in changing the quality of the actions that flow out of the associations. This is most obvious, of course, when human beings act as mediator (for instance, when they are reporting the conversation of others). But ANT

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also states that artefacts can be mediators. Remember the previous example of the bicycle. By its very physical structure, a bike imposes a certain pattern of actions on me if I want to avoid falling down. In this sense, my action to ride a bicycle is not simply my action, reducible to my own skills, but also reflects certain properties of the bicycle. These properties result from engineering design, which is, in turn, the outcome of a long historical process of evolutionary optimisation. From that perspective, the bicycle appears to be a mediator. ANT therefore deviates radically from social network theory as it includes artefacts in network analysis, in particular, technology, which is important for our topic of the creative economy. This approach boils down to an externalist approach to agency, which converges with my treatment of identity. There is no longer a separation between structure and agency, but a systemic interaction between the two in the emergence of actants. An actant is the theoretical term behind the more phenomenologically accessible observation of the flow of actions and associations. Acting is as much active as it is passive, in the sense of being the object of something else’s action, such as the violin playing the violinist (Latour 2005: 212ff.). Even the supposed innermost of the individual is the result of a process, in which mediators operate to subjectify an entity. Naturalising knowledge means Darwinising knowledge To summarise, cultural science posits that agency cannot be constituted as an exogenous precondition of systems functioning but emerges endogenously, as a crystallisation of complex interactions between different parts of systems, into the identity of the human individual. Therefore, identity is also

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interpreted in externalist terms. Accordingly, even the standard notion of the economic agent can be vindicated, given certain systems interactions. But this does not imply that the individual is also the locus of what enables individual action, namely, the knowledge. This argument shows that there are direct and close conceptual linkages between foundational ontological and epistemological issues, and the more specific domains of economics and social theory. The philosophical discussion about mental content has direct implications for the economic notion of rationality. Like pieces of a jigsaw puzzle, seemingly disconnected concepts and approaches move together to build a meaningful structure. A surprising alliance emerges Mentalism and between externalism in knowledge methodological analysis, modern conceptions of frames individualism in in economics, and actor-network theory economics block the in sociology, which has been strongly emergence of a unified paradigm. influenced by theories of distributed cognition (Hutchins 1995, also received by North 2005). This is possible in spite of the fact that from within those theoretical domains, such combinations may not appear to be obvious. In particular, the mentalist traditions of economics and their allegiance to methodological individualism block the emergence of a unified paradigm. This paradigm is cultural science. Cultural science in action builds on Darwinian principles. I have cleared the ground by sketching some basic concepts. Now we have to understand how all that works together.

3 BRAINS, NEUROMEMES AND EVOLUTION Darwinian principles of cultural science Restart: holism versus atomism in cultural science Given my programmatic stance, what is the relation between cultural science and other approaches, and even disciplines, that deal with culture? The first and foundational point is that cultural science adopts the naturalistic viewpoint. Culture is not perceived as the realm of human ideas, values and other mental phenomena. Instead, culture refers to the empirical phenomenon of an evolving stock of knowledge enabling human action, for which the principle of bimodality holds: that is, culture can be analysed in both the ideational and the matter-energy mode. This principle fits into a long, but currently somewhat obsolete, tradition of including artefacts within the notion of culture. Indeed, cultural science includes the study of human artefacts as an important research issue, such as, for example, technology. Interestingly, in the anthropological study of culture the conflict between atomism and holism looms large, too. This topic is extremely important in our context, because it can

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be related to one of the most recent at- In the history of tempts at formulating a Darwinian ap- anthropology, the conflict between proach to culture, namely memetics. atomistic and The tension between atomistic and holistic approaches holistic approaches to culture found to culture has driven clear expression in early anthropology, many debates even in practical matters via the pragmatic problem of how to such as the design of organise museums, as when Franz Boas museum exhibitions. discussed alternative arrangements of artefacts (for a detailed discussion, see Ingold 1986). There are different arrangement options. One is to arrange single artefacts and emphasise their similarities across different ethnic groups, thus seeing each one as a part of the general evolution of human culture in the singular (signified in the notion of ‘civilisation’ in German or French). The other is to downplay the role of single artefacts and instead to emphasise their systemic interdependence within specific cultures, localised in time and space. The first (atomistic) approach implies the possibility of making lists of artefacts and their functions, in order to investigate their diffusion across populations, independent of context. The second (holistic) approach states that single items are meaningless unless they are seen in the context of an entire cultural system. Evidently, these two perspectives repeat some abstract conceptual configurations that we are now already familiar with in the con- The modern synthesis in Darwinism adopts text of knowledge in general. Now, the atomistic stance, the surprising twist of my argument building on the idea of is that I will relate the second view- separable traits that point to the naturalisation project, express information transmitted via whereas normally the first viewpoint genetic evolution. is seen as the point of reference. This

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is particularly true if we look at the possible paradigmatic relevance of Darwinism. It is easy to see if we consider the orthodoxy of the modern synthesis, which is atomistic in essence. That is, evolution is seen as a process in which traits emerge and evolve that are analytically separate from each other, and which correspond to genetically stored information, that is, particular units of physical entities. The traits define the functionality of the living system in terms of adaptiveness, and genetic inheritance provides the medium for the accumulation of the pertinent knowledge. This approach seems close to the atomistic view of cultural artefacts and items, and thus, Darwinian theories of culture mostly follow population-genetic modelling that emerges out of formalising the Darwinian paradigm (for an early attempt, see Lumsden & Wilson 1981; for a comprehensive assessment, see Mesoudi et al. 2006). But this way of thinking is severely criticised by anthropologists who see culture as a correlate to Darwinian approaches meaning. Tim Ingold (1986) presents the to culture mostly authoritative argument that the Darwin- follow the atomism ian approach is missing two essential of the modern synthesis, meeting elements of human culture, namely, the criticism of many personhood and history (for a related anthropologists criticism, see Hallpike 1986). In both who argue that the dimensions, there is a unity of meaning essential feature of humanity gets that encompasses the single constituents lost, i.e. meaning as of the pertinent processes. involved in personhood However, I think that this argument and history. fails to realise that there is a tertium datur (third possible choice) to the original opposition between atomism and holism in cultural analysis. In the early methodological debates of anthropology

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recounted by Ingold, Tylor’s holism referred to culture as a unified aspect of human civilisation, whereas Boas’s atomism referred to the individual mix of traits Darwinist theories, in particular populations. The tertium including the notion of evidently lies in treating the latter as downward causation in hierarchical systems, meaningful units beyond the mere fact can accommodate of mixing traits. This corresponds with holistic understandings the notion of higher level individuals of culture. in biology, which might include even the species or higher taxa (Gould 2002: Chapter 8). In a naturalistic framework, this viewpoint corresponds with those notions in biology that accept the possibility of downward causation in hierarchical biological systems, such that emergent structures operate as an autonomous causal force on further evolutionary processes (Campbell 1974a). If Darwinism can be holistic, its application on the concept of culture is far less problematic than many people in the humanities have feared. We can develop an entirely different perspective if we adopt a holistic interpretation of Darwinism (in a similar vein, see Corning 2005; see also my early work, Herrmann-Pillath 1991). But why should we regard Darwinism as a unifying theory for the study of culture at all? It is because only Darwinism can explain the emergence of novelty in any kind of system, as well as its maintenance through time, in the sense of structural stability and adaptive sustainability. Principles of generalised Darwinism My claim is based on two possible interpretations of Darwinism. One is the reduced form, which boils down to the principle of variation and selective retention. It is therefore mainly based

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on the claim of Darwinism’s universality, in the classic Campbell (1987/60) argument on knowledge evolution. The other is the extended form, understanding There are two basic Darwinism as a historically evolved, versions of Darwinism: complex conceptual system in biology the ‘variation and selective retention’ that includes, for example, biological model; and a complex taxonomy, and hence a set of different set of different theories (Mayr 1982). These two un- theories about derstandings partly define the cleavages taxonomy, selection and genetics. between the modern synthesis, mainly in the shape of theoretical population genetics, and other strands of thought in biology. In the ongoing economic debate about generalised Darwinism in evolutionary economics, there is a tendency to overemphasise the reduced form to the detriment of the extended form, although the internal strife of biology is not duplicated (see Aldrich et al. 2008). In the context of cultural analysis, both positions can be meaningfully considered: • The conceptual structure of variation, selection and retention (the VSR model) The emergence of novelty in any kind defines the minimum properof domain can only ties of any kind of system with be explained in the emerging novelties. As has been framework of the V(ariation)S(election) emphasised many times in the literature (e.g. Jablonka & Lamb R(etention) model. 2006: 11), for the extension of the Darwinian scheme it is only necessary: · to identify a mechanism for multiplying entities via reproduction (which in the cultural context can be imitation, for example)

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· to allow for variation, that is, heterogeneity of the entities (this correlates with a population approach to culture, which precludes reified concepts of culture such as ‘Chinese culture’) · to manifest the phenomenon of heredity, which means that there are similarities between entities that are connected through time via the causal process of reproduction (which is what most people have in mind anyway when they talk about culture in terms of traditions) · to have a competitive environment, such that the individual variations in the population of entities somehow affect the differential reproduction through time (which points towards the role of economic constraints in cultural evolution). • Now, even within that framework, a proper formalisation of the notion of selection (following Price’s equation, see Price 1973, Frank 1995) implies the notion of levels of selection, insofar as groups of traits can be organised Price’s equation allows into higher level traits, which, for the consistent formulation of the in turn, are objects of selection. Once we have introduced levels notion of levels of selection. of selection, we can conceive notions such as: · downward causation from higher levels to lower levels, which also includes · internal selection of developmental pathways as compared to external selection

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Advanced notions · at the interface with the of evolution include environment the core concepts of · the emergence of new downward causation, mechanisms of the storage internal selection, the evolution of and transmission of evolution and the knowledge, that is, the multidimensionality of evolution of evolution fitness criteria. · the multidimensionality of fitness criteria, and their endogeneity in evolution. Thus, the holistic interpretation of Darwinism allows for the treatment of culture as a holistic phenomenon, because holism is concomitant to the levels of selection idea. However, this is by no means sufficient for conducting cultural analysis. The main focus of the argument that culture cannot be the object of Darwinism is that culture is the result of a special human capability to create meanings.

Wittgenstein naturalised Can we apply Darwinism to meanings? This is a highly intricate question, as it is associated with recent developments in philosophy, in particular, teleosemantics A Darwinian approach (Macdonald & Papineau 2006). So let to culture requires me just state that the application of Dar- a selectionist winism is possible if we establish a clear understanding of relation between meaning and function. the relation between meaning and function. In comparison with earlier materialistic accounts of culture, this equation is only seen to be valid because it is assumed to be the result of an evolutionary process in which certain kinds of phenomena are assigned a function because they have been selected for fulfilling that function. The notion

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of function is inextricably related to the notion of selection. This would immediately imply biological reductionism if we adhered to the atomistic view of Darwinism. However, now we have another choice. The most straightforward way to convince the skeptic of this approach is to argue that it is simply a naturalistic approach to Wittgenstein’s theory of meaning (the later Wittgenstein of the Philosophical Investigations, of course, Wittgenstein 1958; for a survey, see Lycan 1999: Chapter 6). This is easy to see, because Wittgenstein rejected the idea of a referential meaning, in the sense of mental content, in favour of the idea of pragmatic embeddedness of symbolic actions in a community of language users. Meaning emerges from complex feedback loops between the use of a sign and the reactions of others to the use of that sign. There is no such thing as an inherent ‘meaning’ in the sense of traditional ideas of reference and content. The meaning is the use. But this is equivalent to saying that the meaning is a function. From that perspective, the real issue about meanings is this: what is the function of our obvious capacity to perceive functions as meanings in the traditional The Wittgensteinian sense? That is, we are able to think that theory of meaning is we think that something is a table. This a necessary condition for the possibility of clearly establishes a meaning for the creativity. Creativity word ‘table’. However, from the Witt- results in new gensteinian point of view, such a mean- functionings for ing is not directly relevant for grasping meanings. the meaning of that word in a community of language users. Here, meaning is what people do when they utter the word and react to an utterance. This approach is necessary to explain the fact of linguistic creativity: if meanings were somehow fixed in terms of

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references, how could we use words to designate new things? For example, on a trip I can say ‘This is our table,’ pointing towards the hood of the car that is now used for picnicking. Everybody will catch my meaning, although the meaning of ‘hood’ and ‘table’ are certainly different. So we have to ask what is the function of perceiving a ‘meaning’ differently from what it is, namely as a function? As we shall see, this is concomitant to the functional need for an identity. We can add a long list of other examples, where language is not used simply to describe reality but to guide human interaction: language is always driven by metaphors and implicatures that are heavily dependent on context, and where the function is often a far cry from the lexicographic ‘meaning’. After all, mastery of a foreign language resides in the proper handling of implicit meanings, and mistakes often happen when relying on the literal meaning as given in the lexicon. However, this kind of creativity can only work if different individuals are able to share the new use of words in the context of new functionings. This relies on The function of a uniquely human capability to imagine meaning lies in what other people intend to do. From enabling shared this it follows that the function of mean- intentionality among human individuals. ings lies in enabling human individuals to develop shared intentionality (Goody 1995; Tomasello & Carpenter 2007). The referential nature of meaning results from this reflexivity, which is mediated via other individuals. In the current context, the important result of this discussion is that a straightforward way to Darwinise culture is offered by Wittgenstein’s theory of meaning, which is naturalistic because it refers to the life forms of a community of language users. However, if we compare this with the

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approach by ANT, what seems to be missing is a theory of mediators, which enable the community of users to interact with language. ANT gives the important idea The completion of a that mediators might include artefacts. naturalistic approach After all, language is an artefact; a phys- to meaning has ical process that relies on heavily con- to recognise that strained acoustic signals. These, in turn, language is a physical process. have direct implications for the specific way in which information and meanings can be transmitted (Ingram 2007). For example, spoken language is a flow through physical time, which prohibits the simultaneous transmission of different items of information, which is one reason why real world language is accompanied by communication through other channels such as body language. Similarly, speaking and writing are not simply two different ways to express the same language, as if soundwaves and letters were just intermediators; rather, they change the very way of thinking when using language (Menary 2007; compare Derrida 1967). Hence, the physical entities of language are mediators. Thus, the only thing that we need to add to our naturalistic view of Wittgenstein’s theory of meaning is that the use of the sign is not a mental operation but a physical process that links up brains. From memes to neuromemes This view of language concurs with Aunger’s (2002) interpretation of memetics. Memetics was proposed by Richard Dawkins (1989) as a possible approach to Darwinising culture. However, even as the term gains currency

The original Dawkins concept of a meme adopts a misplaced combination of atomism and mentalism in treating ideas, artefacts, etc. as units of culture.

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(largely as a metaphor) in non-specialist fields such as internet studies, it seems to be an aborted research program in its original disciplinary domain (see the now defunct Journal of Memetics, ). The reason for that failure is clear, given the naturalist and externalist approach elaborated in this book. As it stands, memetics is an approach to culture that is problematic in two respects. First, it is atomistic, and second, it is mentalist. However, I propose a new approach to memetics that closely follows Aunger’s restatement of Dawkins’s original theory. The problem with the previous approaches to memetics is that Dawkins proposed to view memes as ideas, tunes, symbols and so forth that spread across human minds. This is an atomistic approach, where each supposed meme is seen as an information-carrying unit modelled on the ‘the gene’. Clearly, this kind of thinking contradicts Dawkins’s own Darwinist view of the gene, which he interprets as an information code that controls ontogeny—a recipe not a cake. If a meme were a particular tune, then that would be the same as saying that there is a gene for a particular kind of nose. In short, Dawkins’s proposed memetics confuses the levels of the phenotype and the genotype. But even if a distinction between these levels were possible, there is a further difference between the economy of genes, building on a simple chemical alphabet, and the limitless number of memes corresponding to the myriad of single cultural items. The problem with this is that if we think of memes as tunes or symbols, we are compelled to conceptualise them as mental phenomena, and not consider their material substrate as we do in the case of genes. Therefore, something is seriously wrong with this approach to memes. That might explain the lack of widespread acceptance of the

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hypothesis in the scientific community (for informed criticism, see e.g. Richerson & Boyd 2005: 80ff.). However, if we start out from a naturalistic and holistic approach, the gene/meme analogy seems to be much more plausible. Here, we should not consider Culture in the ‘the’ gene, but rather the system of gene commonsense expressions, as the carrier of information understanding corresponds to the (i.e. knowledge). Thus, the analogue to phenotype, especially culture is not directly the gene, but the in the sense of its phenotype. This refers to a systematic coherent individuality combination of traits that is singular and systemicity. for every biological individual. From the viewpoint of cultural analysis, the idea of cultural atomism is indeed impossible to accept, because the meaning of any single item depends on its semantic embeddedness in relation to all other items. But this is also true for the phenotype, which is a biological individual. The system of genes and gene expressions corresponds to this, so that the meme must be something similar, only with reference to culture. The search for this corresponding entity can be successful if we reject the mentalist interpretation of the meme. The question is then whether we can identify something as a meme that controls the process of creating the cultural item as a part of a cultural whole, and which has a material substrate. Aunger proposes that a meme is a stable structural unit in dynamic neuronal processes, A neuromeme is a which he dubs ‘neuromeme’. This recurrent pattern of proposal fits into the approach of neural activity in a neuronal Darwinism that I scrutinise Darwinian process of neuronal selection. in more detail in Part 2. This unit is able to replicate itself in the neuronal network of the brain. However, it does not have a meaning (Aunger

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2002: 221), so does not have any relation to anything that we may perceive to be a cultural unit. Yet, the replication of such neuronal structures underlies the fact that, for example, we can hum a tune repeatedly, recover it from the memory and so forth. Obviously, there is a clear distinction between ordinary neuronal mechanisms and a neuromeme, because the processing of a noise in the brain does not necessarily give rise to a replicative structure. Aunger’s neuromeme is a hypothesis on the same level as early theories about the gene, until the specific mechanisms of gene expression had been discovered; it is a highly theoretical yet plausible account. In a naturalistic approach to culture, one physical element will be the recurrent patterns of neuronal action that can be reproduced in a Darwinian process of neuronal selection. However, our traditional notion of culture does certainly imply that such patterns are shared across the individuals of a population. In fact, in his early exposition of the theory of neuronal selection, Edelman (1987: 320) had already argued that the stabilisation of neuronal patterns is only possible via the interaction between individuals of a population. This is because only this interaction can provide selective constraints on the otherwise chaotic firing of neurons in a solipsistic brain, as seems to happen in our dreams and in some kinds of artistic expression. Imitation and neuromemetic reproduction How does the stabilisation of neuronal patterns take place? Earlier approaches to memetics emphasise imitation (Blackmore 2000). The role of imitation has been even more accentuated in recent neuroscientific models of learning (Hurley 2008). Contemporary research on human cognition

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suggests that imitation on the scale and Imitation is the complexity of human beings is indeed central process resulting in the unique to the human species (Tomasello stabilisation of et al. 2005). At the same time, imitation neuromemes, lies at the heart of all advanced theories which fits into the of gene/culture coevolution (Richerson externalist approach. & Boyd 2005: 68ff.) and has been the centre of recent anthropological approaches to cultural change as a process of random copying (Bentley & Shennan 2003). All these approaches coalesce into a vindication of a generalised Vygotskian approach to language and thought (see e.g. Carpendale & Lewis 2004; Moll & Tomasello 2007). Stabilisation of neuromemes is the causal correlate of the process of imitation, which is governed by feedbacks on different levels of complexity. There is an intricate relation between the formation of neuromemes and reward mechanisms in the brain. The brain learns certain regular actions by staying in interaction with other individuals who perform that action, and it is the success of coordination among those inter-individual actions which ultimately internalises the underlying mechanisms. In the primordial stages of neuromemetic evolution there is no boundary between the brain and its environment, or the self and the others: on the contrary, the very notion of the self is an emergent property of this more encompassing system, the elements of which are summarised in Figure 1. The central ingredient is a special neuronal structure that enables the brain to mirror actions of others by recognising similarities between ‘own actions’ and ‘others’ actions’, in particular, physical aspects, including objects and artefacts. The afferent (incoming) and efferent (outgoing) neuronal processes are interlinked in feedback loops, which are grounded

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in evolutionarily rooted value functions. Neuromemes emerge This system evolves into a system of out of an ongoing process of mapping classifications of own and others’ ac- sensory inputs and tions, which, in turn, imposes increas- motor outputs onto ing regularity on the internal linkages each other, centring between inputs and outputs. It becomes around ‘own actions’. self-contained through the emerging mechanism of output inhibition, which allows for internal mappings of external actions, thus enabling the construction of counterfactuals (i.e. the construction of possible states of the world). This evolution follows the principles of variation, selection and retention, comparable to other semi-autonomous body systems, in particular the immune system (Hull et al. 2001). Neuromemes play a central role because they store these regularities.

Figure 1. Basic structure of neuromeme stabilisation (modified after Hurley 2008)

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The hypercycle as generalised structural mechanism of evolution The process of structural stabilisation of complex neuronal structures can be formalised by a model that has been proposed to explain the emergence of life, thus the primordial stage of genetic evolution as a knowledge-generating process (for more context, see Lahav et al. 2001). This is the model of the hypercycle (see Küppers 1986: 202ff.; Brooks & Wiley 1988: 76ff.). In the most abstract form, the hypercycle is a process of replication that simultaneously produces catalysts that support other replicative processes, which are mutually connected in a closed-loop chain. In the original case of a chemical hypercycle, the replicative processes are fed by a solution of constituents and the external input of energy (see Figure 2, with A–F being the entities that reproduce, such as molecules) and are supported by autocatalytic dynamics that lower the energetic thresholds for the reactions. As a result, a hypercycle maintains evolutionary stability because of higher fitness resulting from an advantage in energy processing as compared with competing molecules.

Figure 2. The hypercycle

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The hypercycle is a general model that explains complex hierarchical systems, such as ecosystems (Maynard Smith & Szathmáry 1995: 51ff.) or economic systems (Padgett 1997; Padgett et al. 2003). It can be directly adapted to the externalist analysis of the brain, as Aunger (2002: 88ff.) has also pointed out. Neuromemetic evolution results in the emergence of hypercyclic connectedness within and across brains. A simple model can be depicted in the following way. Hurley’s (2008) conception can be enriched by the notion of a Darwinian selection of neuronal struc- The hypercycle tures in the brain. The reproduction of is a universal neuronal structures happens in a com- formal structure plex system of exchanging signals and in the analysis of knowledge evolution. neurotransmitters in the brain, which Neuromemetic implies that neuronal structures com- evolution results pete for these resources, and that they in the hypercyclic can mutually support their reproduction interconnectedness of brains. via joint firings. This is the model of neuronal group selection, for which the formal pattern of the hypercycle can already apply. However, neuromemetic evolution includes the additional feature of an external connectedness between those neuronal processes. In this case, it is straightforward to hypothesise that the artefacts that connect human brains, such as the physical soundwaves of language, operate as the catalysts in the process of neuronal reproduction. The reproduction of a neuromeme simultaneously results in some motor output that includes the handling of artefacts, which is an input into neuronal reproduction of another brain, in which the reproduction of corresponding neuromemes is catalysed. Clearly, these neuromemes are not necessarily the same structures

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as in the originating brain, but they are convergent as per Hurley’s model of imitation in terms of their functioning (compare Aunger’s ‘same influence rule’ 2002: 152ff.). Thus, physical artefacts play a central role in continuously updating these convergent patterns.

Figure 3. Hypercyclic reproduction of neuromemes across brains

I summarise this in Figure 3. It unites the elements of the two previous figures. The crucial point is that the reproduction of a particular neuromemetic input pattern is not only supported by the feedback loop between efferent In hypercyclic brain motor output and input, but further interconnectedness, via the fact that this motor output is artefacts are the catalysts connecting simultaneously an exogenous input to distinct processes a similar process happening in another of neuromeme brain. This exogenous input is a physical reproduction within pattern produced by the motor output, brains. such as a soundwave, an artefact. In the hypercyclic model, it operates as a catalyst for the internal reproduction of the

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neuromeme. Neuromeme reproduction results in hypercyclic closure of the internal states, in the sense of a downward causation of the respective structures. Thus, we can state not only that the neuromemes as such emerge in hypercyclic dynamics, but also that the coordination of neuromemes across brains is hypercyclic, such that internal reproduction cannot be independent from these external dynamics. This hypothesis offers a neuroscience foundation for cognitive externalism. This model clearly shows that the internal workings of the brain are inextricably enmeshed with regular patterns of action in the environment. It undergirds the externalist point of view with strong empirical support. In The theory of particular, we can state, in a Vygotskian neuromemetic evolution provides fashion, that the core phenomenon of a naturalistic internalist accounts of mental content— justification of the internal representation of thoughts externalism in and the self in consciousness—is just epistemology. the result of the emergence of a ‘theory of mind’ in the external interaction. In the process of interaction the brain projects an intentional stance on other brains, and once this idea has emerged, it is projected back on the brain. That is, the self is an externalist construction, but not an internal given (Dennett 1991). The other element of the naturalistic approach to memes is the role of artefacts. As I have already emphasised, language itself is an artefact. However, it is by no means the only artefact involved in the process of neuromemetic coordination across brains. Any kind of regularity in the environment can give rise to this if the reproduction of neuromemetic coordination is interlinked with those regularities. For example, the rings of a tree carry information about the age of the tree, without

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any sender or receiver involved. Yet, from the naturalistic perspective this does not mean that the rings do not contain this information. It can be retrieved by human brains, which implies that the functioning that underlies the growth of the rings becomes causally interconnected with functionings of the brain. Clearly, the intermediate variable is a neuromeme, because there must be an underlying recurrent neuronal pattern that is coordinated with the use of language in a community of individuals who are able to exchange information about the age of the tree. The rings of the tree play the role of an artefact in neuromeme transmission and diffusion. The ultimate consilience of Darwinism and cultural analysis To sum up, we can envisage a Darwinian approach to culture with a naturalistic-externalist theory of language in which meaning is identical to evolved functions in a population of language users. These functions build Culture is a notion on a physical process of coordination that results from between independent neuronal selection consilience between processes in individual brains, which is different sciences, referring to the mediated via the exchange of artefacts, emergent properties of which language is the most impor- of complex systems tant. This is the naturalistic analysis of brain–brain of the most fundamental driving force interactions mediated via artefacts. of cultural evolution, that is, imitation. There is no independent mental content here, though there is an inherent creative force resulting from the dynamics of the Darwinian process of variation and selective retention in the neuronal system. The strength of this approach lies in the consilience between the Darwinian paradigm, the brain sciences and the

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anthropological analysis of culture. This ‘jumping together’ of insights from different sciences (Wilson 1998) becomes possible once a holistic view on Darwinism is adopted. In that view, culture can be understood as an emergent property of systems of interacting human brains, which can be analysed with a naturalistic methodology. At the same time, culture cannot be reduced to the elementary neuronal mechanisms or other elements of the entire system. This is because it corresponds to the results of a complex and ongoing evolutionary process involving both the neuronal mechanisms and the changing nature and composition of the artefacts that enable cross-brain coordination.

4 SIGNAL SELECTION, SOCIAL NETWORK MARKETS AND CULTURAL SCIENCE The creative industries as a laboratory case for cultural science I will now proceed with another jump in the argument, switching again between foundational considerations and the concrete topic of the Creative Economy. The experience of consilience enables us to understand and accept the possibility and methodological legitimacy of this The creative industries meandering way of thinking. Here, I are a laboratory will briefly explore the immediate rel- for the study of the evance of the foundational concepts for evolution of signs in cultural science. the analysis of the creative industries. The conceptual gap is much smaller than expected once we concentrate on a distinctive feature of the creative industries, which is the production and dissemination of artefacts, driven by the consumption decisions of individuals who stay in constant interaction with other individuals. When we concentrate on the core activities in the creative industries, we observe a central mechanism of neuromemetic

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evolution in pure shape, that is, without the interference of considerations of direct utility in satisfying certain needs or functionings. This is because the creative industries are producers of pure signs, whether for mass consumption or for the taste of a highly educated elite. Stabilising patterns of signs, for example the rise of a genre in the arts, may not seem to fulfil any particular biological need, or to correspond to a function in a given technological system. The creative industries produce arbitrary signs, and the diffusion of those signs may be governed by arbitrary mechanisms such as random copying (see Bentley et al. 2007). Yet, there are strong forces that result in the emergence and stabilisation of patterns. Thus, it is the creative industries where we find a laboratory condition for observing the interaction between artefacts and neuromemetic evolution. My cultural science approach to the creative industries results in a different view from that of existing approaches. The crucial difference between cultural science and cultural studies is that the latter focuses on the interpretive potential of the human mind. From that perspective, in principle, anything that we can imagine can be realised insofar as hu- Cultural studies man action follows interpretation. That highlights the creative is why, for cultural studies, a category dimension of culture, and cultural science such as gender might be eventually adopts a naturalistic deconstructed into arbitrary elements view of creative that can be reshuffled at interpretive agency and the will, and which then might become creative process. the object of queer theory. This almost limitless interpretive potential of the human mind also underlies the Creative Economy, because production is no longer perceived as a material process, but primarily as the creation of signs as vehicles for

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ongoing interpretation by communities using those signs. As we have seen, such a deconstructionist approach to culture does not contradict the Darwinian approach, because the latter implies a non-essentialist and non-reductionist conception of culture. From this point of view, the interpretive approach simply grasps the productivity of cultural action. In cultural science, the arbitrariness of the sign is reflected in the assumption that the underlying causal mechanism contains random processes. Random processes are especially important in the creation of signs, and also in their diffusion. This is one of the major reasons why we can cast this interpretive activity into the analytical framework of Darwinism. These random processes interact with other functional determinants to produce the final patterns that emerge from evolution (see Rogers & Ehrlich 2008). Take gender as an example, again. As a meaningful aspect of human interaction, gender is inextricably enmeshed with physical processes. Even the most arbitrary cultural deconstruction and reassembly of gender categories has to rely on aspects of the physical category of sex. Thus, biological sex is not a simple determinant of gender, but it is a necessary physical correlate of gender’s cultural manipulation. Now, how can we relate foundational categories with the particular case of the creative industries? This boils down to the question of how we can further analyse the interaction between artefacts and neuromemetic evolution. The core concept is imitation, as we have seen. This provides the neuropsychological mechanism by which we can explain a certain pattern of diffusion of artefacts within a population of individuals who are connected to each other via mutual observation and exchange of artefacts. In the creative

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industries, these connections are powered by modern information and communication technologies, which certainly vacillate between the functions of a mediator and an intermediator. But the basic mechanism seems to be the same as in pre-modern ages, if we focus on the interface between individuals and artefacts. From that perspective, the evolution of signs happens in populations of networked individuals. This evolution is leveraged, empowered and scaffolded by technologies in different ways depending on the particular stage of technological evolution at that time. Social network markets A recent attempt to set up an analytical framework for the creative industries, that is close to my Darwinian approach to cultural science, has been proposed by Potts et al. (2008). It defines the creative industries as ‘social network markets’. The idea is simple. As conceived in traditional economic analysis, such creative industries as fashion, movies or novels seem to be directed towards certain mental states in individuals. From this point of view, these industries could be seen as having the same relation with the individual as when they buy and eat an apple, which changes their physiological state. However, a second look reveals a difference. In the creative industries, ‘individual choices are determined by the choices of others’ (Potts et al: 169). My consumption of a product depends on what others do. In fact, I cannot assess the utility of a product or service unless I know what others think about it, and I can estimate their status relative to mine. Thus, the utility of the good resides in the fact that (esteemed) others use it, too. Further, current preferences for a particular product are the result of past decisions that follow the same pattern. In

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other words, the formation of preferences is itself a process manifesting the same dynamics, such that preferences and consumption coevolve. This description might be true for any cultural item, so that the only point we need to add to arrive at a definition of the creative industries is that it is a business, which means that production takes place within organisations that pursue a profit motive, and which operate in markets. In our context, the central argument, however, seems to be that those markets are embedded in social networks (networks that typically exceed their market functions), in which the coordination of preferences and actions takes place. Social networks produce a particular kind of dynamics, which is typical for the empirical patterns in the creative industries. For example, we observe highly frequency-dependent effects, resulting in power-law distributions of revenue across movies. From the viewpoint of the businesses involved, there is a clear function for the signs that are being produced, namely, to earn a profit and to sustain a business. Yet, the unpredictability and volatility of the creative industries results from the fact that on the side of the consumer, there is no specific function for any particular sign. Whether Donald Duck, Tom and Jerry or Popeye succeed as cartoons does not depend on their particular sign identities. In the end, the dynamics of social networks (plus the existing intellectual property rights framework) determines which cartoon character will end up as a stable pattern in a certain population of consumers of signs. Now, if this seems to be a special approach to the creative industries, I would note that all economic activities are embedded in social networks, and therefore all economic activities might reveal the pattern highlighted by this analysis

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(following the recent upsurge of social However, beyond the network analysis in economic sociol- creative industries all ogy, see e.g. Granovetter 2002; Podolny economic activities 2005). In the end, we cannot really seem to be embedded in social networks. distinguish what we regard today as the ‘creative industries’ from other industries. Creativity is a ubiquitous phenomenon in the economy, and therefore the narrow definition of creative industries as ‘social network markets’ is explained by the fact that these functions in economic organisation have been identified in the ‘creative’ sector first. Beyond that, the very notion of a social network–based evolution of production and consumption can be seen as a universal property of the human use of signs. All consumption is consumption of signs My argument rests upon our previous theoretical considerations. We need to recognise that all human action, apart from neuronal shortcuts such as reflexive behaviour, is at the same time symbolic action: the consumption of goods is always also the consumption of signs of the goods, with the good playing a dual role of fulfilling a function and being the artefact that mediates neuromemetic coordination. The apple is both a set of nutrients and a sign. That is, in the sense of the basic hypercyclic structure of Figure 3, all consumption is also an input into the neuromemetic structures of the brain that hooks it up with other brains. All consumption of goods is a cultural activity, which supports the very actions that, on the surface, may seem to satisfy some autonomous and internal needs of the individual. All adaptive functions of human beings are culturally shaped, such as the need for food or the need for

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thermoregulation by means of dressing. All food use is also consumption of signs in the sense that particular items of food also have a meaning, such as a supposed function or history, or serve as a signal. Indeed, our conscious choices are not fully informed about the organismic functions of food, because the evolution of the human species vastly All consumption is increased phenotypic flexibility. But also consumption of this flexibility creates a problem of ig- the signs that the goods constitute, thus norance, which is solved by the cultural always activating embeddedness of food consumption. the neuromemetic It is a most significant insight that our hypercycle that modern societies show increased health interconnects brains. problems resulting from obesity in spite of the fact that information about healthy food habits is abundant. In fact, we do not know about our functionings in relation to food intake, and therefore our food consumption is a complex result of external determinants, combining a manifold of environmental clues, which include established behavioural patterns in networks of individuals (on mindless eating, see Wansink et al. 2009). From the evolutionary point of view, the classical debate over cultural materialism among Harris (1979) and Sahlins (1976) does not really matter, if we treat these patterns from the knowledge perspective. Even one of the most basic biological functionings, food intake, is operating under uncertainty and ignorance, as far as the isolated individual choice is concerned. Therefore, it is a cultural activity. The most straightforward way to grasp this point is to approach it in the ‘emics’ and ‘etics’ paradigm. This emerged from that classical debate (Headland et al. 1990) contrasting the emic perspective of the internal observer, which

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would need to be accessed by hermeneutical procedures, among others, and the etic perspective of the external scientific observer aiming at the discovery of causal mechanisms (Verstehen versus Erklären). From the etic viewpoint, an The distinction analysis of food rests upon ecologi- between emics and cal and physiological analysis. From etics falls apart in the emic viewpoint, food is a cultural a unified Darwinian construct that is exclusively based on paradigm, because the emics turns meanings in terms of mental content. If out to be the etics I want to understand food habits in the under fundamental etic perspective, I adopt the position of uncertainty, i.e. the external scientist, without any need culture scaffolds the evolution of functional to communicate with the food users. knowledge. If I want to understand them in emic terms, I need to talk to the people and to adopt the position of an internal, participant-observer. Now, the Darwinian approach offers a tertium, again. This starts out from the observation that the etics of food might not be accessible to anybody, because scientific knowledge was not available during most of human evolution, and it is still incomplete today. Food use operates in conditions of uncertainty and ignorance. The meaning of a food item is related to its functioning, but this is not derived from some external (etic) knowledge about its use, but from an evolved functioning among a community of food users. This functioning inheres in the meaning of the food item in terms of the community of language users. An interesting point is that this does not imply that any given emic meaning directly reflects an etic function. Meaning can be arbitrary, as long as it works to maintain the actual practice of food use. Furthermore, we can state that functionings themselves can show a complex pattern in different

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dimensions. Evolutionary processes working on etic functions and those working on emic meanings The arbitrariness of do not necessarily converge, because cultural meaning is a the endogenous, frequency-dependent special case of signal selection in evolution, mechanism for the diffusion of signs al- which introduces lows for many non-functional phenom- the possibility of ena. One has to be very careful here at non-functional the conceptual level. The argument turns dynamics of meanings in the context of out to be even more foundational if we the functionings of relate it to the general role of signals in coordination among evolution. This enables us to complete different individuals. the conceptual leap from foundational considerations to the social network approach in research on cultural industries. The other dimension of Darwinism: signal selection Zahavi and Zahavi (1997) have introduced the special concept of signal selection to deal with the ubiquity of frequency-dependent selection that results from the fact that all living systems are coordinated via the exchange of signs. That is, the confluence of meaning and function is a universal evolutionary phenomenon (for a related interpretation in the case Life is a system of most simple bacteria, see Ben-Jacob of distributed et al. 2005, 2006). However, this also information implies that there is a twofold meaning processing, and of function, which is fused in the crite- therefore signal selection is an rion of differential reproductive success. essential dimension of That is, any kind of organismic trait Darwinian evolution. can serve both an adaptive function in relation to the physical environment and a signalling function in relation to other living systems. The divergence between meaning and function emerges from the fact that life is a system of

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distributed information processing. The standard example for this divergence is markers in sexual competition (like antlers), which can show prowess and health because they hamper adaptive function in other respects. This is the handicap principle (Dawkins 1989: 309ff.). This is exactly the same argument as with culture: culture does not need to match adaptive functions because it involves signs. But that does not mean that it has no function at all, or that it can systematically disturb all other adaptive functionings. Signal selection as a purely Darwinian mechanism involves the possibility of a manifold of coevolutionary patterns. Coevolutionary dynamics are also reflected in a specific structure of the human brain, which distinguishes between different reward systems: the ‘wanting’ and the ‘liking’ systems (Trepel et al. 2005). Neuroscience has supported similar ideas about experience and decision utility, ventilated in the economics literature (Kahnemann et al. 1997). These systems could also be identified in animals, such The fundamental that a high degree of generality can be dualism of natural assumed. The ultimate cause of the dif- and signal selection ferentiation lies in enabling an organism is reflected in the dualism of processing to build representations of expected re- expected rewards and ward that guide goal-directed behaviour, actual satisfaction in and which differ from the effects that the brain. are triggered by consummating the act. These representations correspond to the neuromemetic cycle and imply that there is a dichotomy between the two processes of perceiving a good, which triggers action to consume it, and the act of consumption proper. Thus, signal selection is a necessary concomitant to the evolutionary emergence of goal-directed behaviour (Dennett

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1995: Chapter 13), which does not even presuppose neuronal systems, as in the case of bacteria, but any kind of complex interactive processing of information in distributed systems. In other words, the internal dualism of brain structures with regard to consummative action reflects the externalist embedding of internal neuronal processes into external processes mediated by physical entities, or artefacts in the majority of cases of human consumption. Once this level of generality is achieved, it is easy to see why the dynamics of social network markets are merely a special case of distributed information processing in complex living systems. What has been identified as a specificity of the creative industries is, in fact, a universal phenomenon of signal selection. And signal selection permeates all other aspects of economic activity. Signal selection introduces a new dimension into Darwinian analysis because it does not refer to the determination of purely individual adaptation, but to the coordination of behaviour among a network of individuals. This renders the question of the underlying selective benchmark, that is, fitness, very complex, because hierarchies of selection are involved, given that signal use is a group- or population-level phenomenon. A naturalistic transformation of Signal selection Wittgenstein’s private language argu- is a group-level phenomenon in ment can also provide a foundation for principle, and it the notion of group selection, which therefore resolves the is hotly contested in biology with the debate about group debate over the possibility of altruism selection. (Sober & Wilson 1998; Field 2001). If we approach the issue from the perspective of signal selection, altruism can be interpreted as a special form of handicap that emerges when

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coordinating the use of signs in a population. Human beings do not ultimately know what might determine individual advantage, with symbols and signs governing our choices. The autonomous dynamics of signal selection will result in many phenomena in which the advantage of the group appears to dominate over what we might rationally reconstruct as the individual benefit. Yet, this view of the external observer is totally irrelevant for evolutionary dynamics operating in conditions of ignorance and uncertainty. The historical specificity of the creative industries The theory of signal selection underlies the theory of social network markets, which implies that the latter are only a special case of a most general evolutionary phenomenon. All signal selection manifests a frequency dependency on individual uses of signs and diffusion across the In signal selection, individuals of a population. All signals the sign is arbitrary in principle, but the are arbitrary to a certain degree, even handicap principle though some aspects are anchored in makes the value of physical constraints and potentials. This signs dependent on is certainly true for the operation of the their costs. handicap principle. If the communicative functioning of the sign depends on the cost of producing the sign, it is arbitrary in nature, but at the same time its emergence and evolution depends on the channelling that reflects the property of costliness. The beautiful colours of birds that serve as a signal in mate competition are basically arbitrary, yet they connect with a function because they are costly, as they prevent opportunities to hide from a predator. In a similar way, human cultural symbols in pre-modern times were also clearly related to functionings, especially in the context of stabilising dominance

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patterns in groups, but remained arbitrary in terms of their specific content. In the modern creative industries, the use of signs seems to be unlinked from this evolutionary interdependence. The very notion of the creative industries seems to imply a separateness of the creative process in postmodern The specificity of the societies from earlier stages of cultural creative industries lies in their embeddedness evolution. Against the ubiquity of cre- in markets, so they are ative processes and signal selection one a result of the creative could posit the argument that in modern economy, and not its economies, two parts of the production prime mover. process need to be distinguished, that is the non-creative and the creative, with the latter being identified with creative services (Potts et al. 2008). Again, this actually refers to a particular historical phenomenon. For example, the production and consumption of an apple might be separated from the consumption of the sign of an apple in the sense that the latter becomes the object of an advertising campaign that gives a special meaning to apple consumption. This is certainly the hallmark of the modern Creative Economy, but it does not imply that there cannot be simultaneous consumption of the apple and the sign. What really counts in the definition of the creative industries is the institutional emergence of a market for creative services, but not the nature of those creative activities. The creative industries are, generally speaking, an outcome of the growing complexity of the social production of meaning, as well as the specific result of the ongoing marketisation of society. In other words, the creative industries are themselves a result of the creative economy, not the other way round.

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The universality of Darwinism and the embeddedness of the sciences We end up vindicating our previous conclusion: cultural science approaches the creative industries as a special historical expression of the creative economy, possibly coalescing into a distinct cultural pattern of the Creative In the analysis of the Economy. In the creative industries, we creative industries, the observe a special institutional expres- social network model, the Darwinian theory sion of the dynamics of signal selec- of signal selection tion, which is analysed by universal and the neuromemetic Darwinian principles on different levels model of imitation of selection. We could demonstrate the converge. strength of the consilience between different sciences, because a specific model of the creative industries, that is, the social network market model, corresponds to a universal pattern in Darwinian evolutionary analysis, that is, signal selection, and this, in turn, can be related with results on basic structural characteristics of the neuronal system. Thus, cultural, evolutionary and neuroscientific analysis converge within one paradigm, which is constituted by externalism and naturalism. Thus, cultural science is grounded on a few foundational concepts, which amount to the naturalisation of knowledge and culture, while at the same time eschewing sociobiological reductionism. In principle, this avoidance of reductionism is the outcome of the internal discussion in biology about Darwinism, which confronts the neo-Darwinian mainstream with an increasing number of non-reductionist alternatives within the Darwinian paradigm. These alternatives are holistic in the sense that they treat biological information as a property of a dynamic process of gene–environment interaction, and that evolution ends up in the emergence of complex hierarchical structures with downward causation.

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Holistic Darwinism also reshapes our thinking about culture, in two senses. The first is that holistic Darwinism assumes that evolution is multidimensional, including the fact of the evolution of evolutionary mechanisms. Holistic Darwinism Culture stays in continuity with the gen- enables us both to eral evolutionary process, as an evolved develop a foundational capacity for culture, but also as an ad- approach to overcome the biology/culture ditional dimension of the evolutionary divide and to design creation and reproduction of knowledge, specific analytical bimodally reflected in structures of mat- approaches to the ter-energy. This insight can be reached Creative Economy. in two ways. One is the refinement and enhancement of Darwinian theory; the other is to reflect on the notion of knowledge. The second direction follows the principles of externalism: once we recognise that all knowledge is a physical structure of physical causes and effects in evolved systems with a proper functioning, the continuity across the biology/culture divide becomes evident. The second sense in which Darwinism changes our thinking about culture is that we recognise how Darwinian theoretical precepts can explain the dynamics and evolution of culture in the narrow sense. For instance, the social network market model directly corresponds to the general notion of signal selection in Darwinian theory. This implies that many of the tools that are useful when analysing the latter will also be useful for analysis of the former, such as the network dynamics of the diffusion of traits. Thus, the naturalistic turn in the study of culture means that we regard culture as a part of human nature, and that we approach culture with the explanatory claims of the natural sciences. But natural science explanations do not invalidate

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research tools that are specific to the study of culture. This is most evident if we consider the role of language understanding in cultural research. We arrive at the following picture of the relation between the different sciences that are of interest in the current context. 1. The most basic is naturalism as a particular ontological position. Naturalism posits that all phenomena supervene on physical causality. 2. The next, also foundational, is the theory of knowledge. This is based on externalism, which is the special expression of naturalism in the theory of mind. This requires an end to the Cartesian tradition in Western thinking. All knowledge is physical, and brains are just a special case. 3. Externalism can only be the foundation for the theory of knowledge if it is enriched by evolutionary theory, mainly understood along the lines of Darwinism. Evolutionary theory consists of different elements, in particular, the VSR mechanism, a taxonomic system, and the notion of downward causation in systems with emergent hierarchical organisation (including sets of specific models such as the hypercycle). 4. Cultural science is a special branch of evolutionary theory that deals with the evolution of knowledge in networks of human brains, mediated by artefacts, in particular, language. Cultural science pulls together elements of the neurosciences, cognitive sciences and the humanities, while staying within the formal framework of evolutionary theory. 5. Economics is the science of a particular kind of

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human artefact, that is, economic systems. Economic systems build on institutions that emerge out of cultural evolution. Economics is evolutionary economics in a principled way, that is, the study of the emergence and diffusion of novelty in the creative economy. 6. The study of the creative industries is a special research object in economics, understood in the previous sense, that is, the empirical research into a historically specific form of the organisation of human creativity in the context of markets, that is, the Creative Economy.

As we shall see in Part 2, the relation between cultural science and economics is constituted via two bridging concepts, creativity and identity. Creativity drives economic evolution, and agency in economic systems is one of its emergent properties, in terms of peculiar agent identities, which are seen in the light of externalism. Thus, the sequence of theoretical specialisations is a closed loop, leading back to the most basic proposition of naturalism.

PART 2 AN EXTERNALIST THEORY OF IDENTITY AND CREATIVITY IN ECONOMICS In Part 1, I identified a number of strands of thought that need to be interwoven to produce a cultural science approach to innovation, novelty and creativity. The unifying theoretical framework is the externalist approach to knowledge. I have argued that new knowledge can only be seen as an aspect of evolution, understood in Darwinian terms. In this framework, culture appears to be the central category to understanding the peculiar phenomenon of evolving human knowledge. Now I wish to flesh out the bones of this argument. In the analysis of culture, creativity and identity play a pivotal role. Creativity is an essential aspect of cultural evolution, which continously generates new knowledge. Following the externalist argument presented above, creativity is not simply an individual property. However, individuals play an essential part in the evolutionary process, and therefore creativity directly involves changing individual identities. As we shall see, creativity and identity are deeply connected concepts, because creativity constantly changes the conditions

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of identity, but new knowledge crystallises in identities. The process of human culture is the interplay between the two forces of creating new identities and stabilising identities.

5 FORMS, IDENTITIES AND THE ONTOLOGICAL CREATIVITY OF LANGUAGE Creativity and identity: conceptual companions There are two different views of creativity. Sometimes we think of it as a purely mental phenomenon, that is, the human capacity to create and discover new In the common ideas, as in mathematics or in poetry. understanding of creativity, creative However, most people would say that acts relate with creativity involves an additional com- problem solving, which ponent, which relates to the significance implies an externalist of the idea in solving problems; that is, account of creativity. Further, creative the idea must stand in some relation acts create things in to facts in the environment, including the world, against a potential recognition of the idea by the background of others. This shows that creativity can- bimodality. not simply consist of a mental activity (compare Van Gulik’s 2004 teleopragmatism). The other meaning of creativity is that we create something new in the outer world. In fact this concurs with the notion that creativity must be related to the environment, for example, as a solution to a universally recognised problem.

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To create something refers primarily to creating a thing, not mental content. I will argue that this is the most fundamental way of understanding creativity. It flows directly from the adoption of an externalist point of view, where ideas are things that emerge at the interfaces between brains and their world, which includes other brains. What is the relation between identity and creativity? Identity poses a problem for the analysis of creativity, because at first sight identity implies that there is no room for change. However, a creative act means that something new emerges; and if there is something new, identities are affected. Creativity is a cultural This happens in a twofold way. One is phenomenon, because that a novelty changes the properties all creative acts of an entity, thus affecting that entity’s affect the identities of all related entities, identity. The other is that the emergence reflecting the change of this new property also changes the of their space of state space, that is, the entire set of pos- possible states through sible properties an entity can have. This the emergence of a new possible state. second aspect of novelty means that a new individual property always changes the identities of all other entities, because the ways to demarcate their identity necessarily change too. This is the straightforward, formal reason why identity is a holistic phenomenon (see Part 1, above), which is a general property of all evolutionary systems (see Ayala 1974). Creativity is a cultural phenomenon by necessity, because all creative acts change the identities of other entities beyond the carriers of that act. A case in point: product innovation in business Why does this matter? Consider the dynamics of marketing and product innovation. In automotives, for instance, recent

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decades have seen the emergence of new types of cars, which define anew the possibility-space of potential properties of cars. Thus, the identities of sedans, coupés and pick-up trucks are established partly by means of the differences among different types of vehicle. But once the SUV was created, merging features of a sedan and a pick-up truck, it added a new identity to the overall product-space. From now on, everybody might ask whether a car is an SUV or belongs to another category, and almost all big car manufacturers moved into this new product niche. Then BMW launched a new crossover between an SUV and a coupé, which raised eyebrows about the identity of SUVs. Similarly, when Porsche started to build an SUV, that raised questions about the identity of Porsche as a producer of sports cars. So we see that market dynamics are driven by the discovery of new properties in the product-space. These properties make up an interdependent whole in the sense that the properties of a single product such as a sedan also depend on the structure of the space of all other possible properties that cars can have (for a general analysis, see Péli & Nooteboom 1999). Hence the ‘identity’ of products in the market is partly a function of their ‘genre’ as well as their individual features, in the same way that a new movie (like Brokeback Mountain) can transform the entire genre to which it is a contribution (the Western). Further, the individual act of creating a new combination of existing properties is not the end of the creative process. We only treat its result as a novelty when the combination receives some recognition in the marketplace. If a business idea—or a movie—fails, it is an act of failed creativity, because something did not come into being to reconfigure the field as a whole.

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As we can see, then, the purely theoretical question of how creativity and identity are related is of immense practical relevance in business and society. Industries, companies and products are defined according to their In business, the identities. Identities are projected into a creation of new conceptual space of the possible proper- products means the ties that products and firms can have, emergence of a new which emerges as the final determinant product identity in a complex space of of identities, in the sense of the indi- possible properties vidual location in that conceptual space. of products. Product Business success for an SUV very much identities coordinate depends on whether customers accept its producers’ and consumers’ actions. identity. An innovative vehicle that combines partial features of different product identities might fail if it remains an oddity that defies accepted conceptual schemes and their possible new arrangements. Product identity is not simply a static fact of the world, but it plays a central role in coordinating the flow of actions of many people involved on the sides of both production and consumption. Thus, identities in the marketplace manifest the same merger of meaning and function that we have already analysed in the context of a naturalistic interpretation of language. The identity of a product emerges from its meaning for different groups of producers and users of the product. At the same time, this makes the proper functioning of the product possible, including not only the use of the product as such, but, in our context, its functioning in coordinating the complex processes of production and consumption. This means that a product is a mediator in the ANT sense, that is, an artefact involved in the self-organisation of network relations. Compare this with the role of the product in standard economics:

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it is exclusively defined by the utility generated for the consumer, which is totally independent of the network relations in which the consumption process is embedded; nor does the product play an independent role in evolving those networks. In contrast, our analysis reveals that products mediate network interactions. This is also the reason why every market process manifests the properties of signal selection, as we have outlined in Part 1. As a mediator, a product is enmeshed in the complex dynamics of forming identities, thus revealing the two sides of a signal, that is, an idea (or concept; and generally a linguistic item) and a thing A product is a that impacts on the physical state of the mediator in networks consumer (in the standard understand- of producers and ing of economics, ‘generating utility’). consumers, thus being In other words, the general notion of a sign in a conceptual space and a physical bimodality applies with full force to the cause of changing economic notion of a product. Standard states of entities at economics, and sociological or cultural the same time. studies, approaches to the product each neglect the other side of the coin: economics concentrates on products as physical causes, while sociology and cultural studies focus on their nature as signs (for a seminal early approach, see Baudrillard 1970; for more recent arguments related to the creative industries, see Priddat 2002: 193ff.). Organisational forms and identities The general theoretical approach to identity in the context of business analysis has been fully elaborated by organisational ecology theorists. Organisational ecology is one way to turn evolutionary approaches into the exact modelling of businesses and industries (Carroll & Hannan 2000). Real world business comprises millions of organisations, which can be

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classified into industries, regional affiliation, target markets and so forth. If a new kind of business emerges, there is a need to reclassify related organisations. For example, when Amazon was created, it was not at all clear whether this was a dot.com or just a bookseller (Ehrig & Kauffman 2007). The chosen classification exerted a tremendous impact on analysts’ predictions of Amazon’s future profitability. Since then, Amazon’s business model has also evolved, thereby changing the nature of the organisation. So we can say that the identity of Amazon was not fixed initially. Eventually it was classified as a high-tech internet company, which is now observed as a separate class (or ‘genre’). This identity, including the identity of its products and services, clearly played a crucial role in shaping all network relations between Amazon and all other agents in the marketplace, such as security analysts and potential shareholders. Where does the identity of a new business come from? Organisation theorists once held that it is rooted in perceptions and attitudes of the members of an organisation, as in the notion of corporate culture. But that approach only defines an individual organisation, not its class. The latter depends on the perceptions prevailing in the environment, among the audience in the context of business (on the following, see Hsu & Hannan 2005). The audience is a group of individuals and institutions who are concerned about the fate of the organisation, being, for example, customers or shareholders. Organisational identities emerge at the interface between the audience and the entrepreneurial activity, and they relate to a complex process of perception and communication, which is mediated via language. In the interaction between an emerging business and its

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audience, sets of rules and norms emerge that define the form of an organisation. The form is a central theoretical category also in general evolutionary analysis, Organisational as we shall see. In business analysis, identities are defined the form is an abstract notion that can by organisational be contained, for example, in legal forms that structure the communication prescriptions, in the business literature between organisations or in internal rules for credit allocation and their audiences. by banks. Sometimes the form is given Forms emerge out labels, as in assigning ‘stars’ to hotels, of an evolutionary process and are which clearly affects the expectations of manifest in legal the clients, the level of room rates and prescriptions, so forth. Organisational forms are ways rules of conduct or to categorise a complex reality, and at schemata in business communication. the same time they shape this reality. We talk of traditional investment banks ceasing to exist on Wall Street in the sense that the 2007–08 financial crisis changed their identity in a seemingly irreversible way, with industry leaders such as Goldman Sachs reclassifying themselves as bank holding companies. Identities can be simple or more complex, depending on the number of dimensions in which the form is determined. For example, as long as there was a clear distinction between retail and investment banks on Wall Street, there were relatively clear identities. In Germany, banks such as the Deutsche Bank had to struggle with the more complex identity that resulted from the fusion of retail and investment banking among continental European banks. These struggles resulted in palpable consequences for business. After the 2007–08 collapse of investment banking, the entire industry had to redefine its identity. In fact, this touches almost every aspect of banking, including the identities of bankers themselves.

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Form is a linguistic phenomenon (comparable to ‘genre’ in the arts) that emerges in communicative networks among the different groups that have stakes in emerging types of organisations, products and markets. The main indicator of an organisational form’s existence is Organisational forms the devaluation of an organisation if it mark differences does not fit the form. Or, if no form has in valuation in the been established, an organisation has marketplace, directly to struggle for recognition; but once affecting the evolution of business. Thus, the form emerges, evaluation improves they can be put almost discontinuously. Thus, the form into the setting of a clearly defines boundaries between Darwinian mechanism identities, which results in real world of variation, selection and retention. consequences. Once a form is settled, it mainly operates as a default category in the sense that an increasing number of its defining properties become part of the tacit knowledge dispersed across agents in the marketplace. Forms become explicit when perceived deviance occurs, especially by means of creative acts in business. These trigger a new round of reflection, discussion and fixing of new forms. Forms as intermediate theoretical concepts in evolutionary analysis The causal linkage between the emergence of identities and evaluation allows the Darwinian paradigm of variation, selection and retention to be applied (compare Aldrich 1999). A new business idea is a variation in ongoing network processes in the economy. Whether it will further evolve and become a property of populations of firms and customers depends on valuations in complex environments, that is, the capacity to generate profits and to raise capital. This determines

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the speed and direction of reproducing the established pattern of business. This selective process increasingly manifests the workings of the mechanism of retention. Retention is related to the emergence of a form. The form bimodally inheres in the matter-energy structures of the business process, that is, it represents the generic knowledge embodied in the related companies, viewed as concrete physical entities, that is, arrangements of people, machines, buildings and so forth. Once the form is established, this knowledge becomes regularised, as a causal regularity in the functioning of the economy. This means that the form can be reproduced independently of the original structure of matter-energy, such that the form can be adapted to entirely different places and times. However, Elitzur (2005) has argued recently, this role of form as an organising force independent of specific contexts in time and space applies to living systems in general, that is, the notion of form appears to be a uni- Forms are a universal versal category in evolutionary theory. conceptual category in Elitzur proposed a new definition of evolutionary theory. life: a process by which forms become They reflect the results of knowledge increasingly liberated from their mate- accumulation. rial medium, thereby appearing in a multitude of places and times, interacting not only with the local, random aspects of the environment, but increasingly with the invariant spatio-temporal regularities underlying nature, namely, physical laws. This definition is an externalist one, essentially, and it relates forms to the accumulation of knowledge, in the sense of being regularities that are interconnected with regularities in the world, establishing newly emerging functionings, that is, emerging new possible states of the world. The property of independence from local conditions reflects the inherent

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stability of the forms under varying selective pressures, that is, relates with the concept of identity. In economics, the evolutionary concept of form comes very close to an approach recently proposed by Dopfer (2005a) and Dopfer and Potts (2007). The difference is that these authors concentrate on the notion of rule. A bridge between the concepts of ‘form’ and ‘rule’ is straightforward to build, as we can define a form as the rule determining its manifestations in particular contexts, in the same way that we have defined a word’s meaning in terms of its functionings in a context, that is, in the sense of the naturalisation of Wittgenstein’s theory of meaning. In the Dopfer and Potts approach, rules originate on the micro level and are bimodally related to carriers such as incipient business models and firms. At the micro level, individual rules emerge as part of a pool of variants of rules in a particular population of carriers. This population The concept of form manifests a diffusion dynamics that is corresponds to the notion of rule in the modelled along the lines of the VSR Dopfer and Potts model. This means that, depending on account of micro-, differential reproductive success, some meso- and macrorules will tend to diffuse across the evolution. population of carriers. Through this process, a rule is transformed into generic knowledge, thus evolving into a form in our sense. Within a given population, a generic rule is to be seen as a meso-phenomenon (see Dopfer et al. 2004), which is grasped, in my terminology, by the form as an intermediate theoretical concept. The form’s ultimate functioning is determined at the macro level, which manifests a multitude of populations with different generic rules. The latter transition is similar to the

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transition from an empirical population approach in biology to the taxonomic notion of a species. A species may exist in different populations, which nevertheless reflect the formal unity of the species concept (as in Elitzur 2005). Thus, on the macro level, structural properties emerge that reflect the retention of rules. We have a similar approach to the organisational ecology approach to form. The crucial point is the transition from a mere diffusion process to a structurally stable pattern, the generic rule or the form. Dopfer (2005a) adds the notion that the three levels of micro, meso and macro can show ontologically separate evolutionary dynamics, that is, independent trajectories of change, for example, interpreting individual learning as an evolutionary process following the VSR mechanism at the micro level, or selectionist approaches to structural patterns at the macro level. This interaction between levels is also relevant when considering identities and forms, because the dynamics of industrial change also involve firm-level learning processes in adopting an identity, which might interact with patterns of regional cluster-formation (meso level) and finally the emergence of forms on the macro level, that is, rule-governed conceptions of industry identities. The neo-Darwinian It is necessary to emphasise that view on the VSR there is an important difference be- mechanism applies only to the diffusion tween the use of the VSR paradigm process, and not to the in Darwinian modern synthesis and retention. Retention its use in my argument (as in that of is the emergence of a Elitzur; and Dopfer & Potts 2007). new ontological fact, i.e. the form. This difference lies in the notion of emergence and hence a different understanding of the role of retention. Genetic dynamics underlie selection, and hence

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the diffusion process within a population. But once a form has been established, this implies the emergence of a new ontological fact—an organisational form as a linguistic fact in the context of business analysis, or a species in the context of biological evolution. This fact exerts a causal force of its own, which goes beyond the mechanics of the diffusion process. Similarly, biologists argue that a new form becomes a force of internal selection, thus distinguishing between ecological and genealogical hierarchies, with the latter being conceived as an evolving structure of constraints carrying biological information (e.g. Eldredge 1985, Brooks & Wiley 1988). The unifying concept behind these different theories is the notion of identity, that is, the role played by identities in shaping the evolutionary dynamics. In other words, forms are intermediate theoretical concepts in evolutionary causal explanations. In sum, the notion of form is exactly the kind of intermediate theoretical concept that I discussed in Part 1 as a missing link in standard economics. At the most general level, a form is bimodally a knowledge structure (possibly reflected in linguistic forms used by an observer, such as the species in biology or the industry in business), and a matter-energy structure (a dynamic system of causal loops that stabilise a regularity in the physical world). The dynamics of emergence: external and internal selection In the context of biology, this discussion has been conducted under the heading of ‘adaptationism’ (for a survey, see Orzack & Sober 2001). The underlying general question is whether an identity defined through a form is a constraint on adaptation, thus showing up in phylogenetic inertia or ‘stasis’, as Gould

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(2002) has put it. In the purely adapta- In biology, the crucial tionist approach of population genetics, role of forms is all observable traits of an organism evident in the debate between scholars who must reflect current adaptive forces in emphasise adaptation equilibrium (Reeve & Sherman 2001). as the crucial force That is, the process of evolution is seen in evolution and as being ergodic (random in the sense those who emphasise phylogenetic inertia. that within a potentially infinite time horizon, any potential state of a system will be reached, including a recurrence of the initial state), such that initial conditions lose any constraining force for the final equilibrium. This differs from taxonomic approaches, which assume that once a certain structural pattern has emerged, this pattern continues to constrain the space of possible adaptations in equilibrium, such that the evolutionary process becomes path-dependent (and will not reach all possible states even in a potentially infinite time horizon). In other words, the ahistorical interpretation of evolution dominates population genetics, and the historical one prevails in macroevolutionary and taxonomic thinking (Gould 2002). This distinction maps out the biological debate over the relation between evolutionary and developmental Phylogenetic trajectories, that is, the relation between constraints operate via ontogeny and phylogeny. In one para- forms that constrain digmatic position, evolution is reflected the development of in ontogeny as the role of developmental an organism during ontogeny. constraints, which manifest themselves on the level of individual ontogeny (Amundson 2001). In a developmental constraint, phylogenetic structures become directly relevant for the present functioning of an organism in terms of its ontogeny.

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Figure 4. Evolution, development and individuality

I propose that such constraints may be equated with the notion of identity that I am going to develop step by step in this book. In the concept of identity, evolution (in the long run) and individual development (in the short run) coalesce into historically rooted individuality. I summarise this point in Figure 4, which is generic in the sense of applying across biological evolution and organisational ecology, as they have been briefly compared in this chapter. Figure 4 starts with the standard diffusion model in the VSR paradigm. It envisages a number of lo- Once a form has gistic curves for different variants of a emerged, it constrains rule/form, which compete under the im- the diversity of possible diffusion pact of external selection, such as market patterns in a selective competition in business. Eventually, one setting, which is form prevails as an emergent property of independent of the population. Henceforth it operates as random variation and from changing a force of internal selection in successor selective forces. populations. The main difference between the upper and lower diffusion diagrams in Figure 4 is that in the

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lower diagram the range of possible forms is curtailed, in this case to one possible form only, which maintains its structural stability in spite of continuing forces of random variation and changing external selective pressures. Its diffusion still shows the logistic pattern for single populations that feature the form, as, for example, the carrying capacity of a niche in markets and natural environments is limited. However, the important difference now is that the form that has been evolutionarily established operates as a constraint on the development of individuals within the population. This developmental constraint underlies the evolutionary constraint, shown in Figure 4 in the enlarged part of the lower diagram. On the individual level, we can also apply the evolutionary approach because there are, for example, many different alternatives for developing individual traits. However, these possibilities converge in an area that is delimited by the form that has been established by the evolutionary process. From this it follows that our first step towards a concept of identity is to see identity as a form that emerges evolutionarily and operates as a developmental con- Identity is a straint. This immediately shows that developmental identity is also a constraint on creativ- constraint on ity, seen as the capacity of evolutionary individual variation, it emerges as an outcome processes to generate novelty. Forms of population-level fix identities, and identities structure evolution and the space of possible evolution, which therefore also operates is less open than all the properties of as a force of internal selection in the the state space. Hence, the concept of evolutionary process. identity reveals, contra Dennett (1995: Chapters 5 & 6), that evolution cannot possibly achieve all states in the state space if only the time span were long enough.

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In biology, the approach to development proposed by Fontana (2003) is very close to this picture. It offers a way of reconciling identity with the possibility of creativity (for more on this, see Fontana & Buss 1996; and Stadler et al. 2001). Fontana distinguishes between genotypic evolvability and phenotypic accessibility, which are mediated through the process of development. At the molecular level, development refers to the essential stage of folding macromolecules, which adopt a particular shape that The apparent tension determines their functionings. Such between identity and creativity can be shapes correspond to forms in our gen- resolved in the notion eral conceptual scheme. The important of neutral variations point is that from the mathematically within the scope of available combinations, only particular a stable form, such that chains of neutral shapes are stable for energetic reasons, variations might such that the space of possible shapes accumulate into the is constrained. If the macromolecule is possibility of a Gestalt interpreted as a network of bondings, switch of form. there is the possibility of neutral changes of atomic positions, which do not affect the stability of the shape. Many changes will destroy the stability of the molecule. However, a series of neutral changes can accumulate over time, ending in a state where the change of a single position can suddenly and radically alter the shape of the molecule, thus implying a Gestalt switch of form. Thus, the possibility of neutral changes explains the possibility of rapid innovations on the phenotypical level. Or, in other words, it is the fact of stasis that explains the possibility of radical change. The important insight reaped from Fontana (2003) is that, at the molecular level, the shape of the molecule imposes constraints on the evolutionary process in the same way as

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the form and its identity do. At the same time, however, this stability allows for the power of evolution to create new possible states in the state space, because the very stability of the shape also allows for a wide range of accumulating variations. In other words, identities allow for variations at the genotypic level, which are protected against their own deleterious effects in a selective setting. Such effects are highly probable in the case of an adaptationist equilibrium. The analytical inseparability of meanings and rules The introduction of the notion of identity in economic analysis (in particular) and evolutionary theory (in general) leads to a need to enrich economics with methods of language analysis, that is, the analysis of forms and the rules governing their use. Following a Wittgensteinian understanding of rules, these are not an exogenous force governing the behaviour of agents, but an endogenous one, inhering in their interactions as emergent regularities. If we extract the rules, this is just a special analytical step that transforms the knowledge embodied in the economic process into referential knowledge of the external observer. We cannot proceed in another way, but we have to recognise that this step is just an artificial one (an ‘experimental artefact’ if taken to arise from the data rather than the analysis). By no means does it allow us to retransfer it into the ontological realm, which is the fatal flaw of Cartesian epistemologies. There is no direct correspondence between what we reconstruct as referential knowledge and the actual knowledge in the process that we analyse. This variant of a naturalistic fallacy has left a deep impact on many fields of science. One particularly misleading idea is the assumption that a formal distinction between rules

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and content can be made, such that A fundamental flaw of knowledge and the human mind can Cartesian ontologies be analysed as a computer that neatly is the assumption separates the syntax and the semantics that reconstructing knowledge in of symbols. referential terms This point has been made in the implies that this most provocative way by John Searle’s corresponds to an ‘Chinese room’ thought experiment (for ontological entity, i.e. mind and its mental an extensive survey, see Cole 2008). content. Consider a man sitting in a box. He does not know any Chinese, but he is equipped with a set of rules that govern his selection of a Chinese character as an output if a Chinese character is entered as an input, such that the input is perceived as being correct Chinese by other people watching the box. The man in the box passes the question-and-answer Turing test of intelligence. According to the computer metaphor of the mind, we would assert that this man knows Chinese. Our commonsense says that he does not know, because we would say that, if anything, he knows the syntax, but he does not know the meaning of the characters. This is Searle’s argument against the possibility of artificial intelligence (AI): there is no way to derive semantics from syntax. Interestingly, this argument easily applies to the notion of creativity: we would certainly tend to deny that this man is being creative in following the rules to select characters. Out of the sophisticated discussion provoked by this thought experiment, some strands have emerged that fit our context. This is the argument that Searle got two things wrong in his account of the artificial situation. One is that meaning resides not in the man but in the system, which, after all, also includes the designer of the rules. In this sense, the interpretation of the Chinese room argument depends on adopting

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an internalist or externalist position on cognition. Externalists would reject Searle’s point; internalists would accept it. The question is whether we equate meaning with the possibility of introspective access to mental content, which is obviously not the case. However, this does not invalidate an externalist account of meaning; it brings us to the second problem with Searle: what happens if we consider the situation without an external rule-maker? In this case, we would talk about a system of emerging rules, which presupposes a more extensive setting of causal feedback mechanisms between the man in the box and external events (e.g. the box could be imagined to be a robot acting in the real world). Searle’s Chinese This replicates the systems view, but room argument against AI does not puts it into an evolutionary context. take into account Against this background, one can deny the possibility that the possibility of introspective access meanings supervene to meaning and can at the same time on interactions between the system claim that the man knows the meaning, operating according in the Wittgensteinian sense of mean- to language rules and ing inhering a set of evolved rules in a its environment, such pragmatic setting (i.e. as non-referential that the rules evolve. knowledge in my terminology). In other words, as long as we consider just a single man in whatever context, this man never processes a meaning, whether he just follows rules or is a native speaker. Meaning only emerges in evolving populations of users of signs. The Chinese room argument is very important in our context of understanding creativity and novelty. There are two basic facts about human language. One is that the syntax of language allows for a limitless combination of elements. Then there is the emergence of new elements, and hence meanings. This latter process is akin to our previous analysis of identity.

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We can say that the meaning of a word is its identity. But how can we then understand the fact that those meanings are not fixed? Meanings of words shift in a community of users, and very often new words are created out of old words. As the linguistic record shows, the capacity of language to generate new meanings is also limitless. In fact, both ways of generating novelty (novel combinations in syntax and novel semantics) relate to each other. There is an old controversy in linguistics, related to our discussion of identity and creativity, over whether the meaning of a sentence is a unified whole or a composite of its elements. It turns out that the meaning of a sentence does not result from the combination of words, but is strongly influenced by the function that the sentence performs in an ongoing communication event. For example, if I say ‘the apple is on the table’, that seems to suggest a combination between two things; hence, the meaning of the sentence seems to be a composite. In the analysis But on the other hand, considering the of meaning, the meaning of the composites, it is very separation of syntactical and difficult to assign a particular meaning semantic forms is especially to the preposition, which has only the outcome of so many different uses. The meaning a historical evolution of the preposition emerges from the of words pinpointing certain aspects of the context of its application. What looks world, such that there like a composite is, in fact, a process is no purely syntactical that ends up with the construction of combination of a certain situation in the real world, semantic units. which cannot be simply deconstructed. Learning a language just by using grammar and a dictionary does not end up in full language competence. This is most obvious from the fact that all words can be

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defined by means of propositions that describe events and states of the world. It seems to be a misperception of the underlying structure if we distinguish between an ‘apple’ and the proposition ‘the apple is on the table’. There is simply no word for the latter, which is a mere fact of the historical evolution of language. For some reason, this type of event has not been given a name, that is, it has never been ‘baptized’ as a word (Pinker 2007: Chapter 3). The lexicon of natural languages is replete with words that reflect similar events. For example, a ‘ride’ refers to someone sitting on a horse and riding, so there is no principled reason why there shouldn’t be a word such as ‘abble*’ designating an apple on a table, and then it would be possible to say, ‘make an abble*’, meaning that you put an apple on the table. This observation implies that syntactic and semantic novelty share something in common, namely, emergent meaning as a holistic phenomenon. It is this line of transition that also caused the debates over the Chinese room argument. In order to understand the relation between identity and creativity, we need to analyse the emergence of new meanings in more detail. New meanings are new things The tension between identity and creativity lies at the heart of an approach to cognitive science that Fauconnier and Turner (2002) have developed. In this approach, identity is seen as the most complex ingredient of thinking. Fauconnier and Turner argue that identity is the result of a creative process that operates via continuous conceptual blending, that is, the transference of meanings across existing concepts, ending up with new concepts and transforming meanings of old

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concepts. The crucial significance of this for human creativity is most obvious from language, in which conceptual blends are crystallised. In language, the role of blending can be seen in the working of metaphors in the process of semantic evolution (Pinker 2007: Chapter 5). If we consider our repertoire of words, all words once emerged from metaphorical uses, which can be made explicit by etymological research. For example, today ‘a ride’ can mean driving a car or being a passenger. This does not mean that we are constantly actively involved in applying those metaphors (we do not think of horses when referring to a ride in a car), but at the same time there remains a potential for further linguistic creativity. This property of language operates in the same fashion as Fontana’s (2003) model: uses of words can accumulate many neutral variations in particular contexts, which finally might end up in the opportunity to use a word in an entirely new context, such that a shift of meaning occurs. There is a tension between the metaphor and the reference of a word, which is the source of linguistic creativity. There has been an immensely complex debate about the notion of meaning in linguistics and philosophy. Interesting- Both syntactic and ly, one of the most complex issues turned semantic novelty out to be what had seemed a simple one: a converge in the notion of emergent proper name (comprehensively surveyed new meanings. This in Tugendhat 1976 or Lycan 1999). An phenomenon has influential solution to that problem uses been analysed in the evolutionary thinking: Kripke’s (1980) theory of conceptual blending. notion of a ‘baptizing event’. Kripke had argued that the only way to define a name can be to point out an unbroken history of uses that ultimately lead back to a ‘baptizing’ event. This event, which is deictic in character,

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is the meaning of the name, resulting in a so-called rigid designation. This has to be compared with the most influential alternative, that of Russell’s ‘definite descriptions’ (Lycan 1999: Chapters 2–4). In our context, a definite description is the same as a statement of referential knowledge, which makes explicit the rules that fix the meaning of the name. However, this posed a logical difficulty that proved to be insoluble. Proper names have the unique property of maintaining their reference and meaning in all possible worlds that we can imagine, thus fixing an anchor for imagination: for instance, we can imagine that President Obama, whom we ‘define’ as the first African-American president of the United States, was not elected president, which is an outright contradiction. Yet we would be able to give an account of a complex counterfactual story (a genre known as ‘allohistory’) resulting from that imagined non-election. The alternative corresponds to our use of non-referential knowledge. For Kripke, meaning is fixed in terms of an evolutionary sequence of uses that ultimately go back to a ‘founder event’. That means we cannot really give a full account of the meaning unless we are able to reconstruct the entire evolutionary sequence. This understanding perfectly fits into the theory of organisational forms, where the founder event is the primordial entrepreneurial act of imagining the new form. Kripke’s theory of ‘baptizing’ corresponds to the emergence of a form from evolutionary sequences of variation and selection, using the extreme case of the individual. But beyond the proper names of individuals, this kind of ‘baptizing’ also applies to names in general, thus extending the Kripke principle to a much larger number of words, such as ‘water’ or ‘horse’ (Pinker 2007: Chapter 6). We can further extend this

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idea to the still larger number of phenomena that human beings are capable of merging into their cognitive system. As has been shown in Putnam’s classical argument, this amounts to an externalist view of meaning, where our central linguistic ability to identify individuals and entities is inextricably enmeshed with the outside world. In other words, things and words coalesce into linguistic things, which are things inside the mind.

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Kripke’s theory of rigid designators fits into an evolutionary approach to meaning, in which creativity results from the possibility of infinite sets of creative counterfactuals that preserve the identities of linguistic forms.

in the world, but not

An evolving world, made from human actions This is the most fundamental way in which ontological creativity operates. It relates to an evolutionarily rooted capacity to impose patterns on the world in terms of unified conceptual items that do not directly reflect the world as it appears in scientific knowledge (Pinker 2007: Chapter 1). For example, we do not refer to time in terms of physical In the externalist time, but in terms of a structured pattern, approach to meaning, which includes ‘events’, ‘periods’ and meanings turn out to be things at so forth to which, in turn, we can give the brain–world names. Thus, 9/11 has become a word interface. This implies related to a ‘baptizing’ event, in the that language is same way as we talk about the Middle ontologically creative. Ages. Our approach to reality is based on a natural ontology that inheres in the pure structure of the brain and its external embedding, which is mediated via language as a physical phenomenon, with meanings as things. Kripke’s theory of meaning turns out to be closely related to the naturalistic interpretation of Wittgenstein’s theory of

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meaning and the corresponding evolutionary approach to language that I proposed in Chapter 1. Hence, I can further submit that names (proper and otherwise) correlate with neuromemes, in the sense that they play a central role in organising our cognitive mechanisms, especially in terms of providing stability of functioning through time. This does not mean that I am resurrecting the Sapir–Whorf hypothesis about the dependence of thought on language, but I do state that language plays a central role in organising our thought in Thus, names as its externalist embeddedness, thus fol- physical entities lowing a Vygotskian tradition. In other are triggers of words, once an externalist approach to neuromemetic mind is accepted, language obtains a evolution. central role in understanding the underlying neuromemetic evolution. But this does not mean that language encompasses the entire realm of thought, as we have seen in our discussion of neuromemetics. Language physically triggers neuromemetic evolution. It is a cause of structured and reproducible processes, but it is not identical to these processes. This is the reason why meanings appear to be so fluid and open to continuous reinterpretation, and, in particular, why two individuals might never agree on the meaning of a word, though language is a public phenomenon. Much more could be said here, but we need to focus on the central point. Reinterpreting Austin’s famous book title How To Do Things With Words, I posit that in a very specific sense, the world is our creation. In the evolutionary framework, we can remove the intellectual baggage of the opposition between empiricism, which sees external data as sensory inputs from which the world is constructed in the human brain, and rationalism, which takes the constructive

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force of our epistemic system as a priori. Instead, we realise that our actions are themselves part of the world, as they enrich the world with new things, that is, the With the notion of artefacts of signs, bimodally conceived ontological creativity as matter-energy and knowledge. This of language, we can realisation is rooted in the processes of remove the intellectual baggage of building language from elementary ac- juxtaposing empiricism tions that are increasingly internalised in and rationalism. the human brain, resulting in embodied patterns of imitation and simulation that underlie the basic neuromemetic model that I outlined in Chapter 3 (compare Gibbs & Matlock 2008). Neither sense data nor a priori categories are the elementary units of meanings, but elementary patterns of action in populations of individuals that have coalesced evolutionarily into forms. Forms are part and parcel of the world, conceived as a unitary phenomenon in naturalism. To understand more complex forms, which have become prevalent in our culturally complex societies, and which are the object of specific activities such as the creative industries, we need to explore the evolution of complexity in language.

6 THE STUFF OF NOVELTY Blends, metaphors and the creative brain The basic operation of the conceptual blend Based on the naturalistic approach to meaning, we can now move on to analyse the major source of novelty, going beyond the primordial act of ‘baptizing’ a certain structure of reality, which essentially comes only into being by that act. This is the metaphorical use of meanings (thus Beyond the original building on a long tradition in cultural act of creating studies, semiotics and related disci- words as things, the plines, see Lakoff & Johnson 1980; fundamental source of creativity in language Hawkes 1972 for seminal studies). is metaphor. Even if almost all words in language emerged from metaphors, which is true in etymological terms, that does not imply that they operate as such today. Yet, this observation shows that metaphors grasp an essential aspect of the evolution of meanings insofar as they are novelties in the semantic space of language. We met this basic idea in Chapter 5 with the example of the SUV, where the identity of a new ‘genre’ of vehicle consists in its being what the other types in its system

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are not (a Saussurian or negative definition). What happens is a conceptual blend in which the starting point is a metaphor, a shift of meaning, such as thinking of a ‘sedan’ as a ‘pick-up truck’, ending up with the blend of an ‘SUV’. This role of metaphors is central to the human cognitive and epistemic system; it underlies basic notions in everyday life as well as in the literary imagination, such as treating time as a spatial phenomenon, and ending up with science, such as the metaphorical use of the notion of capital, which has been blended with other concepts such as learning in human capital or transactions in social capital. The process is always the same. Fauconnier and Turner’s (2002) core idea about conceptual blending is that human thought operates in conceptual networks. This idea fits exactly the network models of the brain in neuroscience (Lakoff 2008). In such networks, conceptual blends play the central operative role, both in Blends operate via the sense of regular operations and as mappings of different sources of novelty. As is shown in Figure input spaces onto generic spaces, and 5, a blend projects an input space into they can operate as another input space, involving a generic generic spaces for space in which the two inputs can be further blends, thus related, such that they can be fused into resulting in complex networks of blends. the blend. Blended spaces and generic spaces belong to the same theoretical category, which entails that a blended space can, in turn, serve as a generic space for another blend. So a conceptual integration network can build on complex chains and embedded patterns of blends. These, in turn, may be compressed into simple concepts again, as happens when we forget the metaphorical use of new words as unearthed in etymology, and just use the words in Kripke’s sense as a rigid designator.

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Figure 5. Basic structure of conceptual blending (after Fauconnier & Turner 2002)

For example, a feature of human world perception is to view time as similar to motions in space, so that, for example, we can say that time went by (for more detail, see Fauconnier & Turner 2008). The spatial perception of time is, in fact, an immensely complex blend, if we consider the evolution of the concept in human history. For example, what we today regard as perfectly natural, dividing time into units of a day that have exactly the same length, is by no means natural, but was a cultural innovation. This innovation presupposed a conceptual blend that projects the sequence of days on a circle, implying that we return to the same point of time every day (which is more or less what happens with the rotation of the earth—but the ‘inventor’ of ‘the day’ need not have known this). Once the idea of ‘circular’ time emerged, it could be divided further into measurable segments, in the same way that spatial length can be measured. Thence, the notion of a clock emerged,

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unifying the ideas of cyclic motion in space and time in a technical artefact. Once this artefact existed, new blends could be created depending on the social context. In the case of time, When industrialisation started to spread the blend activates in Western Europe, time became an the metaphor of important aspect of coordinating work space, eventually enabling the creation in an environment with other artefacts, of artefacts measuring that is, machines. Thus, the artefact of time that became a clock assumed the role of a media- mediators in human tor in an ANT sense: building on the networks of human work. conceptual blend of time as space, an artefact was created that eventually shaped patterns of human interaction in a way that was not familiar to human cultures in which that artefact was never used. Blending and the growth of knowledge This example clearly shows how conceptual blending is a creative act, which relates both aspects of creativity; that is, new ideas and new things. Most blends are minimally creative in the sense that they manifest structures that did not exist in the original input spaces. For example, Blends are time cannot run backwards, but I can leveraged by Gestalt walk back to my starting position. That psychological mechanisms. is, blends are creative in the sense of enabling human beings to imagine new aspects of reality, which might, in turn, prove to be functional in real action. This capacity is leveraged by Gestalt psychological principles: very often blends are fragmentary and incomplete, yet our brain operates in a way to work these blends into more elaborate and complete patterns, which may introduce entirely new aspects as compared with the original input spaces. Gestalt

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psychological regularities also play an important role in stabilising behavioural patterns that are related to the emerging new concepts (from the viewpoint of institutional economics, see Schlicht 1998). By far the most important kind of blend is the counterfactual (Lewis 1973). As has been shown in the recent philosophical debate about causality, counterfactuals seem to lie at the heart of the human capacity to recognise and analyse causality. This is because in order to identify the cause of an effect, it is necessary to construct a counterfactual world that differs from the real world only in one respect, namely the existence of the cause (Woodward 2003: Chapter 3). Counterfactuals are central to the specifically human process of accumulating knowledge about the world, in terms of the capability to handle relations of cause and effect. This is especially true for the most basic form of human learning, imitation, which we discussed in Part 1. Indeed, counterfactuals build on the neuronal mechanism of output inhibition of mimetic acts (see Figure 1). Imitation is based on the counterfactual ‘If I were you’ and vice versa. That is, the most elementary precondition of human learning, the capacity to mentalise, is nothing but a conceptual blend that establishes counterfactual identities across human individuals. Precisely because it is a complex blend, it is not easy for human infants to achieve after a long period of learning more simple blends (Tomasello et al. 2005). At the same time, counterfactuals are the defining feature of creativity in the sense of imagining what is possible yet does not exist. They are crucial for the human capacity of planning. For example, if I wish to go to Australia next week, I have a certain idea about the necessary and sufficient conditions to achieve that goal. These conditions are defined according

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to counterfactuals in the sense that I analyse the causes that lead towards that effect, and I decide to concentrate on those causes that end up with my goal. The counterfactual operates in two directions. First, setting up the goal is a counterfactual insofar as I assume a state of the world that does not (yet) exist. In order to bring it into existence, I take it as a given in counterfactual terms, and then try to understand the states of the world that lead and do not lead towards this effect. That requires many blending operations, especially if I have no previous experience with that activity. As Fauconnier and Turner (2002, 2008) discuss in detail, blends can operate with different levels of complexity, which at the same time are normally hidden beyond consciousness. That is, the continuous process of blending results in the construction of conceptual integration networks, which provide the scaffold for new blends without the need to make all elements of the involved frames and operations explicit. They can be made explicit, notably through the creative arts, poetry or jokes, which make us aware of hitherto unthought relations between words and correlated thoughts. Performativity as ontological creativity of language Blends that stabilise through time and within the context of a community of users result in ontological creativity in the sense that they create a new aspect of reality. This fact has recently been recognised in sociological studies of economics, which use a term from the philosophy of language to describe the fact that economics is not simply a description of reality, but also contributes to economic things coming into being. This is the notion of performativity (Callon 2007), which I equate with ontological creativity.

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Let us consider an example, again taken from economics. Modern financial markets are certainly free from any connection to pre-existing things, as compared with Modern financial markets for oil. At the same time they products such as forex are real, as they can cause many effects futures emerged as in the real world. How does this peculiar a conceptual blend mix of virtual and real processes come that was made possible because the into being? In the past four decades, frame of reference innovation in the financial sector was was shifted from driven by conceptual blends, in which notions of gambling the modern theory of finance played the to the science-based notions of equilibrium role of unifying the conceptual frame- markets. work underlying the blends. The most intriguing example was the crucial step of introducing forex futures at the Chicago exchange in the early 1970s, which was followed by other kinds of index-based securities and options, finally engendering the modern financial system that collapsed at the end of 2008 (MacKenzie 2006, 2007; Millo 2007). Previously, futures only existed for agricultural products, which implied that at the time when the future became valid, actual delivery of goods took place. There was general agreement that similar activity in purely financial items such as stocks would amount to gambling. Substituting delivery with cash payments was especially prohibited. In this case, the blend from agricultural to financial products did not work. But then a new blend was created by Leo Melamed of the Chicago Mercantile Exchange, who argued that foreign exchange can be treated similarly to agricultural goods, because delivery is involved in balancing the claims, as in the case of currencies; and delivery and cash payment are the same processes, so that cash payment can be interpreted as delivery. Thus,

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he suspended the original conclusion that cash payments imply gambling, because no delivery takes place. Once this blend was created and accepted, it became possible to extend it to other financial assets. Scientific research contributed to this development in an essential way, as it showed that ‘the market’ in the sense of neoclassical economic theory can be a universal frame for all these blends. This transforms the blend into a very simple kind of blend, the so-called mirror network, which projects inputs into each other against the background of the same generic space, the market.

Figure 6. Blending and the creation of modern financial markets

As we see in Figure 6, the blend was not possible in the initial stage because there was an oscillation between two frames, that of gambling and that of agro-futures markets with physical delivery. The creative act was twofold: one was the shifting of frames, that is, setting up a new generic space, and the other was creating the blend in terms of imagining a forex futures exchange. We can see that the process of blending relies heavily on language. This is why we can also say that the act of creating the futures market was a performative act, in the sense of

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speech act theory (Callon 2007). This grasps the fact that the switch to the neoclassical market as the generic space for the blend is not simply the move towards another way to describe reality. After all, the oscillation between the neoclassical market theory and the notion of gambling is still active even in the minds of professional traders, and in the wake of the 2007–08 financial crisis many people would believe that the frame of gambling might better fit the reality of financial markets than the ‘efficient markets’ frame. The blend actually creates a market, not only in the sense of creating a new concept, but also enabling the individuals involved to establish a market that follows the ideas of a neoclassical market, as, for example, in regulation. It follows that cognitive blends transform reality, being enmeshed in real world actions and processes. In order to relate the theory of blends to our naturalistic The principle of approach to cognitive externalism, we bimodality applies only have to provide a bimodal view to conceptual of the same processes. One part of the blending, both in the sense of blends bimodality of blends is given in the fact being enmeshed with of ontological creativity: after all, forex external things and futures do relate to things, however blends supervening abstract. The other part is to interpret on neurophysiological mechanisms. blending in terms of neurophysiological processes. By this twofold ontological connection, we can relate the theory of blending with the general neuromemetic framework established in Part 1 of this book. The neuroscience foundation of blends and metaphors The neuroscience approach to blending is implicated by the more general neural theory of metaphor in neurolinguistics

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(Lakoff 2008). As I have already stated above, all blends are ultimately rooted in elementary units of embodied action. The underlying model lies in-between purely modular theories of the brain à la Fodor and purely connectionist models. This corresponds to the general notion of forms that we met in the previous chapter. That is, in the neuronal dynamics of meaning, neuronal groups emerge as intermediate structural units that correspond to concepts in networks of semantics that can be reconstructed by linguistic analysis (for a seminal approach, see Strauss & Quinn 1997). Clearly, this is a hypothesis at the current stage of the argument, but it makes sense against the backdrop of neuromemetics. This approach implies that concepts build on neuronal groups that embody actions such as ‘run’, which can be transferred into other conceptual combinations such as in ‘time runs’. The units are stabilised via the recurrent patterns of actions and signalling that happen when those actions are The neuronal realised by oneself, but also, and even theory of metaphor more importantly, by others. It is the corresponds to the general neuromemetic interlinkage between our actions, oth- model and explains ers’ actions and the ongoing utterance of the metaphorical phonetic signs that underlies the stabili- functionings of sation of neuromemetic structures. The language in terms of neuronal group basic mechanism behind this pattern formation via different formation is the dualism of activation kinds of bondings, and inhibition across neurons that form mappings and mutual part of a group. Recurrent activation and activation/inhibition of neuronal activities. inhibition linkages through neuronal firing result in neuronal bindings of different degrees of rigidity, which is basically the synchronisation of neuronal firings across populations of neurons. As I have argued in Chapter 3, the most

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fundamental mechanism can be theorised to be a hypercyclic one, in which the firing of neurons activates, or catalyses, the firing of other neurons, and inhibits the firing of yet another group of neurons. Depending on the interrelation between activation and inhibition, different distinctive larger patterns can emerge, such as dominant groupings that are activated by a single cue (for example, the fear of snakes activated by the view of a snake); or so-called Gestalt circuits, in which the perception of parts of a phenomenon is completed by internal constructive processes in the brain. A central mechanism is the mapping between neuronal groups in different parts of the brain, which connects internally activating groups via an additional Gestalt mechanism, such that the partial activation of one group simultaneously activates the entire other group in other parts of the brain. All these neuronal processes are presumably governed by some of the most general principles of physical economy and optimisation of connectedness of networks. There is the hypothesis that neuronal networks maximise the overall strength of bindings and the degree of connectedness. Clearly, such a mechanism would be governed by the general principles of network dynamics, as established for networks in general (Newman 2003). In particular, the general mechanism of activation and inhibition will result in a dynamics that shows many features of scale-free networks, thus further enhancing the structuration of the brain by the emergence of nodes with different degrees of centrality and connectedness (e.g. Honey et al. 2007). A fascinating example of this relation between neuronal patterns and concepts, also related to financial markets, is a potential double-scope integration network with reference

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to risk. Double-scope integration networks not only blend inputs, but also frame them in the sense Complex concepts in that a blended space contains elements behavioural analysis of the different frames of the inputs such as risk can be (Turner 2008). We have already met an deconstructed as conceptual blends, example, which was the notion of time and the different as space. In fact, this does not mean that ingredients of the all properties of spatial motion also ap- blending process can ply for time. Time is space, but not the be related to distinct patterns of neuronal same. Turner analyses risk as a double- activity in brainscope integration network, which can be imaging studies. directly related to neurophysiological patterns recently identified by neuroeconomic research (for a survey, see McCabe 2008). Risk can be seen as a blend of chance and harm, as the frame of risk manifests properties of both. Chance refers to the mere possibility of different event alternatives. Recent neuroeconomic research has shown that patterns of neuronal activity in the brain reflect the different dimensions of this conceptual blend, thus revealing the internal complexity of the concept of risk. Similarly, loss aversion has been shown to have a neuronal correlate, which means that losses are more strongly weighted than gains in the corresponding generic space, with the resulting emphasis on harm (Dreher 2007). Further, the two dimensions of risk as it is treated in the standard mathematical approach, that is, expected value and uncertainty in terms of variance, also produce distinct patterns of neuronal activity. All these results, mainly from neuroimaging studies, reveal how seemingly simple concepts and their behavioural correlates correspond to distinct patterns of brain activity that involve mappings between different areas, thus ending up in complex circuits in synchronised

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neuronal firings, as we have assumed in the general model of Chapter 3. Blending naturalised: neural Darwinism How can we reconcile the theory of conceptual blending with the evolutionary paradigm? The crucial step is to interpret blending in terms of the VSR process. This is possible if we relate the blending theory with Gerald Hayek proposed a Edelman’s (1987, 2006) theory of neuro- selectionist model nal selection (for a related approach, see of conceptual Calvin 1996, 1998). Edelman’s theory categorisation, which can provide a unifying is a central part of our transdisciplinary transdisciplinary integration, because it directly relates to framework for the Hayek’s early theorising about the brain, analysis of human when he proposed an evolutionary and cognition and the economy. connectionist approach to conceptual categorisation (Hayek 1952; compare Herrmann-Pillath 1992). Hayek’s theory of the brain underlies his evolutionary approach in economics, so that the paradigmatic closure is straightforward to achieve. It is necessary to emphasise that this theory is not fully validated empirically, but is supported by many results of brain science as well as by related artificial intelligence (AI) projects in robot design. The general conceptual framework is that a theory of learning in the brain can be modelled as a VSR mechanism (see also Hull et al. 2001). The underlying selective mechanisms cannot yet be identified empirically, and competing explanations exist for the resulting patterns. There are exact modelling approaches that have demonstrated that a VSR process can work in principle, given current knowledge about neuroanatomy and neurophysiology (see e.g. Fernando et al. 2008).

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The structure of Edelman’s theory Edelman’s theory of neural Darwinism (Edelman and Tononi 1995 offer a good sees the brain as summary, see also the assessment by a highly dynamic Sacks 1995) is as follows. The basic and fluid system, idea is that the brain operates as a group in which neuronal groups constantly selectionist system, in which groups of compete for resources, neurons compete against each other in and which is guided mobilising resources (e.g. neurotroph- by phylogenetically ines) for neuronal growth and activity. evolved value systems. There are three stages in neuronal evolution. The first is developmental selection before birth, which features a highly disordered growth of neuronal connections, ending up in an individually unique basic structure of the brain that reflects genetic constraints. For example, this process presumably establishes neuronal capacities for primary emotions, which have emerged from phylogenesis and shape further brain development of basic evaluative mechanisms, related to survival and reproduction (e.g. primary emotions such as rage or lust; see Toronchuk & Ellis 2005). The second stage is experiential selection through which connections between neurons are strengthened according to differential sensory and motor inputs, thus establishing a basic linkage between the world and the brain. Selection is guided by the set of genetically transmitted value systems, which define the fitness of neuronal units as reflecting certain causal mappings between events and states of the world, and their effects on survival and reproduction. These value systems operate via the release of a number of neurotransmitters and other chemical substances in the brain, such as endorphins that relate with effects of pleasure (a value, for example, can be ‘eating is better than non-eating’).

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The third and final stage for the emergence of mind, and also the particular contribution by Edelman to the theory of neural Darwinism, is the further increase of complexity by means of re-entrant signalling and mapping. This refers to the increasing density of signal relations between neuronal groups that map different aspects of reality. Re-entrant signalling is different from feedback mechanisms in neuronal Consciousness emerges network models of error correction, as as an aspect of complex re-entrant it primarily results in the brain actively signalling and constructing the world. Via re-entrant mappings between signalling, neuronal groups end up in different parts of stable arrangements. The central point the brain. is that even the most simple concepts, such as viewing a chair, appear to be complex and highly dynamic neuronal phenomena in which hundreds of maps in different parts of the brain are related by re-entrant signalling. I can now state that a neuromeme cannot be a simple neuronal structure (or even a simple neuron as in the much quoted grandmother neuron). A neuromeme is a recurrent pattern of mappings that is maintained dynamically in a selectionist process, in which that neuromeme is continuously reproduced, but possibly also altered and modified through time. This observation allows us to sketch the neuronal foundation for conceptual blending. In this framework, a blend is simply a higher order mapping that builds on more elementary maps in the neuronal system, and which crosses different parts of the brain (compare Coulson 2008). The highly fluid nature of neuronal group selection can explain why the brain constantly creates novelty in the sense of new mappings between partial aspects of concepts that organise sensory and motor inputs. In a

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selectionist system, there can be no fixed reference, and only fuzzy meanings pop up from the dynamic course of neuronal variation, selection and retention (Edelman 2006: 98ff.). Now, it becomes clear why the externalist account of meaning and knowledge is, in a sense, not only a fundamental philosophical proposition but in fact a sort of science-based ontological proposition (see Bunge 1977, 1979): the creative brain would explode in mere fantastic imaginations if it were isolated from other brains. That is, without an external fixation all meaning would become arbitrary In the model of neural in a solipsistic closure of the brain. In Darwinism, the brain particular, as Edelman suggested early can only stabilise in the interaction with on (1987: 320), the stability of re-entrant the external world, signalling within the brain depends in particular, via on communication, that is, signalling signalling among among brains. This is, of course, where brains. the role of language comes into play. Again, this ends up with the naturalisation of another famous Wittgensteinian argument, namely the impossibility of a private language (for a survey, see Candlish 2004). A private system of meanings cannot be evolutionarily stable. The world is part and parcel of the brain This allows for a radical conclusion: there is no brain/world dichotomy. The ‘outer world’ is not simply something that the brain refers to, but the brain needs the world in order to stabilise its own functionings. In this sense, the world is a part of the brain. This is the most radical version of externalism, based on the primacy of the brain as a phylogenetically evolved system that appropriates the world as a way of maintaining its existence. The world impacts on the evolution of

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the brain (in the sense of Dretske 1995), such that there is a selectionist force that channels the proper functioning of the organism in its interactions with the world. But this relation is turned upside down if we consider the functioning of the brain as such. For the brain, the world is a necessary part of its own functioning. In other words, evolution adapted the brain to the world, but the brain operates in a way that adapts the world to the brain. This hypothesis is reflected in physics with the so-called anthropic principle, which is disputed but seriously debated in the context of evolutionary cosmologies (see for some related viewpoints Penrose 2006: 1030; Smolin 1997, 2007; or Susskind 2006). This is the deeper reason why human language has an implicit ontology that differs a lot from the established scientific knowledge about the structure of the world (Pinker 2007). In the naturalistic perspective, the relation between neuromemes and external artefacts is a necessary one, because the artefacts play an essential role in stabilising the complex patterns of mappings in the brain. However, this is only one aspect of the more general role of the environment in stabilising the neuromemes, as it is posited by Conceptual blends are externalist epistemologies. In the case neuromemes that are of human beings, conceptual blends triggered by linguistic rely on words as external physical artefacts. structures in order to proceed. This differs from Fauconnier and Turner’s (2002, 2008) approach, where words appear to be mental phenomena, as are the concepts that relate to them. Fauconnier and Turner do not refer to the fact that all blends operate in communicative contexts, that is, that we blend concepts in order to achieve a goal in communication and interaction. How is it possible that this works between different

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individuals? Because we rely on artefacts, that is, phonetic units of language, which trigger the activity of neuromemes in different brains. This is always context-dependent, that is, a neuromeme always operates in specific networks of brains. But the ongoing inflow and outflow of artefacts, that is, signals and words, continuously activates stable and recurrent patterns of neuromemes that underlie our cognitive system. Now, a blend operates via the simultaneous activation of different neuromemes, which interact in a larger emerging neuronal network. The blend does not build on interactions of entire sets of neuromemes, but it is sufficient to generate new partial re-entrant signalling patterns among a subset of maps that is part of the pre-existing neuromemes. Once the blend is related to an artefact, it becomes a neuromeme in turn. Thus, the apple on the desk is not a neuromeme, but ‘apple’ is a neuromeme. If ‘apple’ is exchanged across brains, there is a fuzzy activation of all underlying network segments, without being accessible to consciousness. But they can be made explicit via other blends and uses in propositions. This is also the foundation for the emergence of novelty via the Fontana mechanism of accumulating neutral variations. If, for some reason, abble* emerges as a word, it will be based on a conceptual blend related to a neuromeme. Finally, current research in evolutionary psychology and psychiatry suggests that the creative activity of the human brain might also be directly supported by a corresponding value system, which is the ‘play’ system. Play has been shown to be essential for language development in children, and language is, in turn, central for the peculiarly human expressions of play, especially role-play. Role-play is a core activity of human societies, as in religious ceremonies or in the performing arts. Thus,

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there appears to be a direct neuroscience correspondence between what we regard as ‘cultural’ activities of humans and the primordial, evolutionarily selected value systems that govern neuronal evolution in the brain. For example, a major expression of this value system seems to be the central role Human creativity of religion in human behaviour, which is triggered by a fundamental evolved emerged out of the symbolic transforma- value, i.e. ‘play’. Play tion of a set of biological instincts, drives drives both blending and behavioural patterns, such as fear and and neutral variations. deference to authority, and the embodiment of the corresponding motor patterns (Burkert 1996). Creating things with words What happens if a new word is created and accepted in a community of language users? I have laid down the claim that this is an act of ontological creativity, which means that the world has been enriched by a new thing. There is a seemingly naive justification for this claim: the artefact clearly is a thing, so the world has been changed in terms of its space of possible states. This seems to be naive, because I do not talk about meanings, just about the soundwave. But from the externalist perspective, there is the simple fact that a word is a matter-energy structure that causes processes in the brain, which are, in turn, related Language does not to matter-energy structures. That is, a simply reflect reality, but creates reality in word is a cause, and there is no cause the sense of adding without ontological status, that is, with- things to the world. out existence. In this sense language is Words are causes, and ontologically creative. The major flaw causes exist. of all traditional theories of meaning was that language was treated like money in economics, namely, as a pure medium

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that depicts reality, but which is not itself a part of that reality, just as money is seen as a pure sign, not producing utility. The naturalistic view of language argues that language creates reality simply because a new word is a new thing, standing beside the things to which it was traditionally supposed to refer. Meaning supervenes on causal loops between those different kinds of things. This approach is important for our further argument, especially in the context of institutional creativity, and it introduces a different methodology from the one normally adopted in economics. It is grounded in the basic ontological premise that ‘something that does not cause something’ does not exist and, conversely, that a cause must have the ontological status of existence (Bunge 1977: 160, 271). In a naturalistic framework, if we assign the status of a cause to a phenomenon, then it exists as a part of the one world. Of course, assigning the status of a cause to something is by no means an easy task, as it requires a sufficient understanding of the causal Words are things in relations in the world, which we often do the sense of being causes, hence implying not have. But we are not allowed to keep the ontological status the two notions of cause and existence of existence. Meanings separate. This is what Bhaskar (1989) supervene on causal has labelled ‘transcendental realism’ chains involving words and actions. in the sense that, for example, causal hypotheses about social structures necessarily imply their existence, thus enriching the ontology. This contrasts with the standard methodology of economics, which avoids ontological commitments and treats methodological individualism as a mere analytical device, despite the fact that such an approach leads to the ontological premise that in social systems only individual human beings exist.

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In the theory of neuromemetics as propounded here, the ontology of human social systems appears to be entirely different, as it is composed of bodies and things, which both have causal status. This includes words as physical things that are constantly manipulated in a community of speakers of a language, like tools and stones. Following Wittgenstein’s private language argument, a word cannot depend only on the speaker’s ‘meaning’, because it is the word itself that shapes what the speaker develops in their supposedly autonomous intentions. So the word has an ontological status, because it is an independent cause in a chain of in- In the externalist teractions. At the same time, a word can account, creativity be created anew such that we can talk relates not to creative agents but about ontological creativity. But in the to the evolutionary naturalistic setting, this creation does process of iterative not relate to the idea of an individual exchange of artefacts mind just thinking about a new word in populations of individuals. and uttering it suddenly, imbuing it with mental content. The new word is the result of an evolutionary sequence of utterances in a community of speakers, such that we cannot equate the creative agency with individual creativity, but with the evolutionary process involving the continuous exchange of verbal artefacts among many individuals (see also Aunger 2002: 261ff.; Millikan 2005). The significance of this seemingly naive statement becomes evident if we compare words with technological artefacts. A technological artefact embodies regularities in the physical world, that is, it is an element in a sequence of causes and effects. If we create a new artefact that did not exist before, we change the world in the sense of introducing a new thing into it. There is no essential difference between this

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role of technology and the functioning of a word. Words refer to causal chains in human social interaction, whereas technologies mostly do not primarily refer to this, but Language is not a to causal effects between other things. mental phenomenon, However, following the signal selec- but compares with technology. Words are tion approach outlined in Part 1, many things with functions, technologies simultaneously operate in and meanings are part the physical and the social world. One and parcel of those such is weaponry. But, in fact, the ap- functionings. plication of physical force is essentially the same as the use of a word that threatens such use, and the weapon is at the same time a sign of its effect. In sum, the proper approach to language would be to see it as technology or a tool, and not as an aspect of mental processes. A word is a hammer, that is, it has a functioning, and the meaning supervenes on that as well as being a part of that functioning. Meanings emerge from the fact that for proper functioning brains have evolved to adopt the intentional stance, such that they can perceive other brains as goal-oriented agents, that is, having intentionality. This is especially true in the context of human cooperation. The meanings in our minds are only secondary derivations of this. Technological evolution proceeds via sequences of blends We can better understand the essential similarity of language and technologies from the externalist perspective if we look at technology through the theory of conceptual blending. This also allows us to relate Darwinian theories of technological change and innovation to our naturalistic interpretation of conceptual blending (for a survey, see Ziman 2000). Darwinian theories of technological change posit that the creation and diffusion of new technological knowledge follow

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the VSR paradigm or, simply, an iterative trial-and-error process with retention. These theories are based on early theories by Campbell (1987/60, 1974b) on evolutionary epistemology, and they fit into the general framework of the analysis of new knowledge that was offered in Part 1. For example, when in the first decades of the 20th century the design of aircraft was continuously improved, engineers presented a great number of possible shapes of aircraft and parts Technological such as landing gear (Vincenti 2000). evolution follows The possible shapes first showed a the VSR dynamics and can therefore wide variation until the population of be interpreted along aircraft designs converged to certain the lines of the local optima. This process was very naturalistic version of similar to artificial breeding, in the sense conceptual blending. that the engineers did not have the necessary knowledge for discovering the optimal design on theoretical grounds alone, jumping directly to a global optimum. Instead, they defined a fitness function (in this case, speed), and chose (often through competitive events like the Schneider Trophy) those variants that approached the maximum speed. In principle, this kind of search is modelled today in engineering approaches that directly apply evolutionary algorithms to design problems, thus using an evolutionary model as a vicarious device for real world testing. But this analogy demonstrates the fact that the real world process also follows an evolutionary trajectory. Most, if not all, technological innovation builds on recombining existing technologies. Modern technological artefacts consist of more simple modules, which may also be used for many other purposes. This is true for the major inventions that drove the industrial revolution, such as the steam engine. Watt’s steam engine emerged from a number of recombinations of

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available technological elements and built on a previous history of the evolution of artefacts, like pumps, that used steam to drive mechanical processes. No single breakthrough event resulted in inventing the steam engine as such. Ending up with a solution was an evolutionary process in a double sense: first, there was a sequence of trials and errors in the history of artefacts using steam for different purposes. Second, the very process of invention was a trial-and-error process of its own. In the case of Watt’s steam engine, one Through institutions can add that this process was contained such as patents, we tend to overlook once he filed for a patent, because that the basic fact allowed him actively to suppress further that technological variations on his technology, leaving the innovation is a process impression to later generations that this of producing large numbers of variants, was ‘the’ steam engine (see Boldrin & their ongoing selection Levine 2008). Without patent protec- in competitive tion, it might just have ended up as one environments, and version in a long series of variants (as retention. we can observe today with the Chinese shanzhai phenomenon, the explosion of variations of brands and products in what are not simply fakes: such as a Sqny gadgets, which copy Sony products but add original features). The steam engine as such is a combination of other technologies, such as boilers and pistons. It is therefore a blend of these modules. After its invention, it went on to become a module in other technologies such as the steam locomotive, which is, in turn, a blend. So we can say that technological evolution exactly follows a VSR dynamics, which we can interpret as ongoing conceptual blending, both collectively and individually. Once a technology has been created, the possible state of the world has changed, which opens up

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new possibilities for creativity. This is the most fundamental expression of ontological creativity, which reflects the same mechanism in language. Once a word has been created, it can be used in new combinations, thus giving rise to new blends. Technology and language enrich the world in the same way. Decentring knowledge evolution I have now put together a number of essential ingredients for an externalist account of creativity. This amounts to decentring the notion, by shifting attention away from the creative agent to the process. It is not human individuals who are creative, but the evolutionary process of which they are a part. Creativity is just creative evolution. Yet, this does not mean that all creative processes are reduced to one ontological pattern or layer of evolution. In particular, I have analysed the evolutionary processes in the human brain. These can be interpreted bimodally as ongoing conceptual blending or neural Darwinism. Thus, conceptual blending supervenes on the physical process of neuronal selection. This does not mean that cognitive evolution can be reduced to genetic evolution. However, genetic evolution certainly is a source of the value systems that underlie the selective processes in the brain, following the precepts of evolutionary psychology. A key driver of creativity is individuality, which in population genetics would implode into the notion of random variation. But individuality is related to the notion of identity. In that context we can reconcile evolutionary views of creativity with heroic (individualist) ones: it’s just a matter of scale. From the population perspective, the famous inventor Thomas Edison is just a bag of random variants of ideas as artefacts. But if we scale down, given the immense complexity

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of the brain processes underlying creativity, we see that only Edison, and nobody else, triggers all that creativity. We see also that despite all of the creativity that flowed from his actions, Edison somehow remains the same, in the Kripkean sense. After all, this is Edison, and nobody else, and never again. This is why identity and creativity are necessary conceptual complements. At the very ontological and logical base, the randomness of the world and the uniqueness of the individual are just two sides of the same coin. This is the next issue that I have to tackle.

7 THE BIO-LOGIC OF IDENTITY Identity is the foundational ontological concept In this chapter, I will overview some The economics of foundational aspects of identity, which identity has to be aim at relating biological theories with embedded in the ontological and philosophical contributions to the issue. biological approaches This provides the ground for dealing to identity. with the economic theories of identity in the next chapter. I begin with a short sketch of philosophical problems and continue with discussion of the two main reasons why individual identity is a problem in a naturalistic setting. The first is that the biological boundaries of the organism are not fixed, as epitomised in theories about the extended phenotype. The second is that the brain sciences suggest that the brain is not a systematically integrated unit, but a set of loosely integrated modules. I conclude this section by proposing an evolutionary model of the individual, which later serves as a framework for the economics of identity. The notion of identity is one of the most fundamental

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concepts in philosophy and logic, not to mention in the study of human cultures, while at the same time being one of the most intricate (for a survey, see Noonan 2006). This insight, however, is also disputed, given the fact that identities underlie most of the formalism that we apply to understanding the world. After all, a mathematical equation is an identity, which builds on the most elemental identities, as in preserving the identity of a variable. From that perspective, identity might simply be seen as a foundational concept, which cannot be further dissected. Yet, identity does not seem to be an innocuous term. This was always evident after the classical definition of identity by Leibniz, which poses the difficulty that it only works into one direction: his principium identitatis indiscernibilium (the principle of the identity of indiscernibles): x = y  ∀F(Fx  Fy)

To prove the identity of an object, we fix whether all properties F are the same, but if we hit on objects with the same properties we cannot really tell whether they Following the early are identical numerically (see Tugendhat treatment of identity & Wolf 1986: 171ff.; or Deutsch 2007). by Leibniz, no For this, we need an encompassing sys- conception of identity can solve the dilemma tem of identifying objects in space-time, that predicative which would add to the Leibniz crite- identifications cannot rion. Even with the most fundamental ultimately prove notion of logical identity, we face the numerical identity. problem of identification. This becomes even more important if we consider the notion of change: many entities undergo changes through time, in particular, living things. How can

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we say that a developing individual remains the same through time? Strictly applying the Leibniz criterion, there would be an infinite number of different individuals with time indices that indicate different properties that develop over time. But what constitutes the unity of those developmental trajectories? Thus, as we see, identity as the mere tautology A = A is a very complex proposition unless we take A for granted. If not, the notion of identity is deeply enmeshed with the notions of existence and the notion of predication. Individuum est ineffabile In this context, it is extremely useful to revive a notion of medieval Aristotelian philosophy, which touches a central concern of modern analytical philosophy (Pieper 1974). This is the question of the ultimate constitutents of reality in the sense of the irreducible individuals (the principium individuationis), that is, the question of substance (Bunge 1977; Robinson 2004). In Aristotelian philosophy, this question bridged ontology and metaphysics. Philosophers believed that substance could only be individuals, implying that all catego- Aristotelian ries that we use to describe their proper- philosophers coined ties could only be seen as existing in a the term individuum world beyond our human reality, such est ineffabile, meaning that the as the Platonic world of ideas. If one ultimate constituents puts this possibility aside, the meaning of reality, i.e. the of the equation between substance and individuals, cannot individuals is just to state that nothing be identified by predication. that can be said about individuals can grasp their substance, as all predication consists of assigning elements to classes. Therefore, the essential properties of individuals make them inaccessible to any kind of predication.

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Medieval philosophers coined the term ‘individuum est ineffabile’ for this idea. Clearly, the only way to refer to individuals is to give them a name that is at the same time unique. This is the role of proper names, which since Frege and Russell have posed big trouble for modern philosophy. This is easy to understand, in fact. How can we identify the individual named ‘Mary Smith’? Well, we can give a description of minute details, but this means that we simply add classes and classes of concepts, hoping that ultimately the shared set of those classes This corresponds to the will only contain one individual. But this Kripkean treatment process is never binding in the sense that of proper names, thus even if there is only one individual at showing that identity is an evolutionary the time being, this does not logically concept in the sense preclude the possibility of another indi- that identification vidual with the same properties. Further, must rely on the as we have seen earlier, this approach explicit account of a chain of events linking poses insurmountable difficulties for up with the time when the use of names in counterfactuals: we the entity came into can construct possible worlds in which being, or when it was the individuals have totally different ‘baptized’. properties, but in each world they seem to maintain their identity. Against this background, Kripke’s solution of referring to ‘baptizing’ events further gains in plausibility. Viewed from the perspective of modern theorising, the medieval proposition individuum est ineffabile can be reinstated as the proposition that ‘the individual is irreducibly complex’ in the sense of algorithmic incompressibility or computational irreducibility (Küppers 1986: 142ff.; Wolfram 2002: 552ff., 737ff.). The Kripkean criterion for proper names is irreducible because ultimately it would require a complete

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description of the entire developmental trajectory of an individual. There is no way to reduce this complexity further by referring to regularities that can be predicated. However, algorithmic incompressibility implies that the individual is a random phenomenon in the strict sense, that is, even a probability distribution does not apply as a regularity. If the individual is a random phenomenon, Borel’s paradox applies. It states that it is impossible to prove that a phenomenon is random, because that would imply that we are able to apply certain regularities to the phenom- In modern parlance, enon that are implicated by the proof individuum est ineffabile means (compare Chaitin 2005: 122ff.). This algorithmic is another way to restate the medieval incompressibility, individuum est ineffabile. To prove hence genuine randomness we can only proceed by randomness. counter-example, that is, if we succeed in algorithmic compression, we can prove non-randomness. But we can never know whether a phenomenon is truly random. This logical difficulty underlies the conceptual problems that we face when discussing identity. Thus, individuals can be seen as ultimate ontological constituents of the world, in whatever physical shape, or in the pure logical sense. Individuals cannot be properly identified without a criterion of identity. However, this criterion is impossible to define, because what makes an individual unique cannot be accessible to predication, or is algorithmically incompressible. In this sense the world is random in a most essential way (for a related argument, see Popper 1982). This is the most fundamental reason why any naturalistic ontology must be an evolutionary one.

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The turn from essentialism to population thinking Indeed, what we have discussed so far is closely related to the Darwinian turn from essentialism to population thinking (Mayr 1982: 45ff.). Darwin challenged the assumption that species are immutable classes of individuals, The ontological which share some fixed properties that analysis matches can be described by the naturalist. For Darwin’s move from him, species turned out to be fuzzy sets essentialism to of individuals that manifest random population thinking in the definition of the variations in their properties These species concept. variations are an input into an ongoing process of variation, selection and retention, in which average properties emerge as characteristics that undergo continuous changes. Thus, in an evolutionary context the problem of identity boils down to the problem of how individuals and populations relate. The first question is how we define the individual, having further applications of this notion in economics in mind. This requires us to fulfil two criteria (see Davis 2003). One is clearly to select one individual from a number of others, which includes the requirement of being neat about the boundaries of an individual; the individuation problem. The other is to re-identify an individual through time: The re-identification problem. Economics takes both propositions for granted. This manifests the deep embeddedness of economics in the history of European thought, which ended up exalting the The belief in the human individual as the fully autono- autonomous individual mous root of society. The sociologist who is defined by the boundaries of their Elias (1969b/1989) has coined the term body is a contingent homo clausus (locked, closed, ‘inside’) outcome of Western to refer to this phenomenon, in which European social and intellectual history converges with the intellectual history.

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evolution of social norms and values (compare Taylor 1989). In this conception, the individual is seen as being delimited by the boundaries of the body, and all causal powers of the individual reside within this bodily realm, ending up with the idea of an autonomous will. Thus, the standard notion of the individual is internalist, in the sense that all essential characteristics of the individual lie within the boundaries of their body. Modern science raises doubts about this assumption for two reasons. The first is an extension of the Darwinian move to population thinking; the second questions the unity of the brain in the sense of a coherent identity. The inexactness of the boundaries of the body The first observation is that some influential schools of thinking in modern biology reduce biological phenomena to the level of genes (the classic is Dawkins 1989). In genetic In the most radical view, the individual reductionism, the is just a vehicle for the genes’ function- individual becomes an ing, a kind of surface phenomenon that ephemeral property of an evolutionary results from competition and coopera- process of gene tion among genes. The direct expression selection, with genes of this view is the possibility of limited transcending the altruism on the individual level, which boundaries of the body. results from the shared identities of genes beyond the boundaries of the body, that is, the inclusive fitness concept (for a concise view based on this notion, see Trivers 1985). This is the main reason why this biological debate has direct consequences also for economics. The conceptual background for this approach is the distinction between genotypes and phenotypes. What we

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normally regard as being the individual is merely the phenotype, an ephemeral expression of the biological information stored in the genes. Genetic reductionism strictly follows the Weismann doctrine that no purely phenotypic information is ever transmitted across generations. From this follows that in evolution only genetically stored information matters. As genes are not confined to the boundaries of the body, the individual does not play a central role in evolution, apart from the fact that individual, genetically represented traits of phenotypes are selected in the evolutionary process. This approach raises the question: how do genes recognise their identities across the boundaries of the different bodies that are constituted through their activity? Obviously, a gene has no cognitive device to recognise another gene. Therefore, genes in a body have to rely on a mechanism, Genetic reductionism which is itself genetically based, that presupposes a mechanism for identifies shared genes. Clearly, this identifying sameness problem results in a serious difficulty of of genes across self-referentiality, because the mecha- their vehicles, i.e. nism for identifying shared genes is itself organisms. This could only work through an object of such a mechanism. In other gene expressions, words, genetic reductionism only shifts which are, however, the problem of individual identity to the not unequivocally level of gene identity. This holds true determined. for both the gene and the scientific observer. As stated above, the gene has no cognitive device to recognise the sameness of other genes. The scientific observer seems to have a criterion, namely chemical sameness; however, chemical sameness is not the property that counts for evolutionary analysis, in which the sameness of a gene is stated in terms of the sameness of its functions, that is, gene expressions. Now, the simple fact is that genes

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and gene expressions are by no means deterministic and unequivocal mappings (for a survey, see Jablonka & Lamb 2006; Rheinberger & Müller-Wille 2007). Hence, stating gene identity in terms of gene expressions is not possible: ultimately, this reflects the fallacy of the Leibniz criterion, in the sense that the mapping between genes and gene expressions is not one to one, but one to many and vice versa. It is fascinating to observe that the solution provided by evolution directly reflects the logical difficulties inhering the notion of identity. The distinction between the biological self and the non-self is made by the immune system of an organism (Tauber 2006). The immune system The evolutionary is an autonomous evolutionary process solution to this within the body that is only in principle problem is the immune system. genetically based. Thus, the criteria that ultimately establish the borders of the individual are not determined genetically, but result from a complex developmental path in which the immune system learns to distinguish between self and non-self elements. This learning process follows the VSR mechanism, in turn, because the challenge for the immune system is to continually generate novelties, that is, new antibodies, which respond to the possibly high-speed evolution of harmful entities that impact on the The immune system body, namely, the antigens (Hull et al. is an autonomous evolutionary system 2001). That is, the immune system is a that generates a self/ foremost biological example of the in- non-self distinction, teraction between creativity and identity and hence meanings, in evolution. In doing this, the immune by interpreting chemical and system achieves a remarkable feat, biological novelties. which is to distinguish between pos- It is unique to the sible novelties that are generated within individual.

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the individual and those that come from external sources. Thus, the immune system actually operates like a cognitive system in which every antigen is assigned a ‘meaning’ in the sense that it is put into a context, which varies the reaction of the immune system. This also holds true for identifying self-entities. The immune system is a creative process because it constantly generates new ‘artefacts’ (antibodies) and creates new meanings at the body–environment interface. Therefore, Jablonka and Lamb (2006: 68ff., 88ff.) speak of the ‘interpretive capacity’ of the immune system. This shows that the problem of recognising genetic similarity across individuals is by no means an innocuous one. In fact, it was only solved by the evolutionary emergence of a mechanism that is almost completely independent of the genotype that controls the ontogeny of the individual. This, however, means that the individual is an emergent property of the developmental process and cannot simply be reduced to the information stored in the genotype. Thus, we can conclude that the individual is an irreducible emergent property of the evolutionary process, even if this would be conceived along genetic reductionist lines in the first place. The problem of gene identity cannot be solved in a straightforward way, which exactly reflects the logical and ontological difficulties with identity. This argument can be further radicalised by recognising that there is a long tradition in biology to regard the species as an individual, and not simply a class of individuals (Brooks & Wiley 1988: 104ff.; Ghiselin 1997; Gould 2002: Chapter 8). This principle of individualisation is, again, logically homologous to the Kripkean argument on identity and proper names. That is, we cannot define a population of similar individuals

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without referring to a set of common boundary conditions for their variability, which relates to a common past in the shared genealogical origin. This is the form as Gene identity also an emergent property of the evolutionary depends on the process. The form, however, transcends emergent properties of the boundaries of the individual, as species as individuals, reflected in the working of the immune i.e. phylogenetically rooted forms that system. Therefore, we can conclude that constrain variability. the notion of identity in the context of biological evolutionary theory is a complex one: on the one hand, the boundaries of the individual dissolve in the notion of genetic relatedness across individuals; on the other hand, the resulting need to fix a criterion for genetic identity ends with the conclusion that this is context-dependent in a principled way, as it depends on a number of higher level, emergent evolutionary mechanisms such as the immune system or the species-specific phylogenetic constraints. The brain is a fragmented system of systems If modern genetics questions the role of bodily boundaries in individuation, modern brain research raises doubts about the unity of the individual (for an extension, see HerrmannPillath 2009c). This unity refers to the belief that individuals correspond to an entity that itself cannot be further analysed, the mind. The assumption of unity also underlies standard economic analysis, in which the individual is modelled as a unified and coherent decision system. Modern brain science has seriously undermined this belief. The picture that emerges is one of a modularised brain, which is itself an evolutionary system, as radically elaborated in neural Darwinism. In this system, consciousness is a surface

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phenomenon that expresses certain results of inter-organismic coordination, but does not reflect the actual working of the brain (Dennett 1991). The most important features of the brain, for our discussion of identity, are as follows: • The brain can be analysed in terms of four differ-

ent aspects: the affectual versus the cognitive, and the conscious versus the unconscious; with different modes of operation, especially serial versus parallel (for a concise summary, see Camerer et al. 2005). • The brain operates in sets of problem-specific modules that integrate different functional areas, and that build on specific linkages between affects and cognitive models, such that emotions obtain the role of a central coordinating mechanism (Damasio 1995; Tooby & Cosmides 2005). • And as we have seen already, the brain operates as a highly dynamic evolutionary system of variation, selection and retention of neuronal patterns. Such a system cannot construct a unified decision unit out of itself. Interestingly, this observation follows from an economic theorem, that is, the Con- The Condorcet–Arrow dorcet–Arrow theorem on the impos- theorem on the impossibility of sibility of collective preference func- collective preference tions (Steedman & Krause 1986; Ross functions proves 2005: 352). Neuroeconomic research that a modularised, has shown that it is perfectly possible evolutionary brain cannot coalesce to reconstruct single modules of the into a single, coherent brain as rational decision units in the and integrated sense of as-if optimisation (Glim- decision unit. cher 2003). However, this implies that the interaction

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between those units cannot be governed by one unified and coherent decision system. This is why, ultimately, many decisions arrive at the level of consciousness and finally require a true decision between alternatives that cannot be put into a clear sequence. There is a major conclusion following from this analysis of the brain: the unity of the brain cannot emerge from the brain, but requires an external anchor. This external anchor is the interaction between brains, mediated via symbolic systems. This is a principled argument, ultimately related to impossibility theorems in formal systems. As long as the brain is analysed as a single entity, it can never escape the paradoxes of selfreferentiality. Therefore, the very functioning of the brain has to rely on an external system. This is the ultimate foundation of externalism in cognition. The important implication of externalism is that brains can never be analysed without, first, an interdependence among brains, and second, considering the medium of interaction. If we link this up with the previous argument on population thinking, the intimate relation between the two is The two arguments straightforward to recognise. This is that link up in the Edelman the operations of the brain require an ex- hypothesis that brains can only stabilise via ternal embeddedness in species-specific the embeddedness communication processes. This is the in species-specific reason why ontogeny plays a central role communication in all mechanisms of gene expression, between brains. and why ultimately it is impossible to keep the role of genes and culture—namely an essential part of the human environment, or nature and nurture—apart (Oyama 2000).

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The extended brain and its two selves Both analytical perspectives, the population-genetic view and the brain-science view, raise an important question: how can we conceive of the individual capacity for action, given the fragmentation within the brain and among populations? How can we account for the fact of intentionality, in the sense of an individual feeling to act intentionally, and others perceiving that individual to act intentionally? For this, I adopt an approach that has also been crafted by the Darwinian theorist Richard Dawkins (1982). This is the notion of the ‘extended phenotype’. I will present the thesis that intentionality is an externalist notion closely related with identity. The extended phenotype refers to the fact that the adaptive functions of many living systems are The notion of not located only within the boundaries the extended phenotype serves of the organism. For example, a bird that as an evolutionary builds a nest externalises an important foundation for an part of the adaptive function of being externalist approach able to raise offspring, obtain shelter to intentionality. and so forth. In this sense, the phenotype includes the nest, that is, an artefact. We can expand this notion to the notion of the ‘extended brain’ in the case of human beings (Sterelny 2004). This externalist approach has been crafted in different areas, such as cognitive science and philosophy. It is very close to the extended phenotype approach, as it states that the functions of the brain are partly externalised in artefacts. However, a new dimension comes into play in the case of human beings, because by far the most important such artefact is language. I have already developed the main building blocks of this approach in Part 1. What I need to add now is an explicit

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externalist theory of agency and intentionality that extends the preliminary thoughts on endogenous agency in the first part of the book. James Coleman (1990: Chapter 19) has developed the basic characteristics of the model that I am going to present now. He distinguishes between the ‘object-self’ A minimal approach and the ‘acting-self’, the ‘receptor’ and to brain modularity the ‘actuator’. Each person is dualistic, is the theory of two basic modules, as in because one aspect of them concentrates Coleman’s distinction on the evaluation of external effects between the objectself on their status, and another deals with and the actingself. making decisions about actions. This This is supported by brain science, which introduces a symmetrical relation be- distinguishes between tween organismic human individuals two different circuits and organisations, because both can be reflecting ‘liking’ and analysed in the framework of an abstract ‘wanting’. ‘principal–agent’ model. In that setting, the receptor is the principal, and the actuator is the agent. This distinction can be supported by recent insights in brain sciences, including the principal–agent framework (Brocas & Carrillo 2008). In psychology, Kahnemann et al. (1997) distinguish between ‘experience utility’ and ‘decision utility’. These two different measures of utility refer to the receptor and actuant, respectively, and have been related to different areas of the brain and the related activity patterns (Trepel et al. 2005). As we have seen, this dualism reflects the autonomous role of signal selection in evolutionary dynamics. Decision utility appears to be represented in the dopamine system, a modulatory neurotransmitter that is released by neuronal firings related to expected rewards (Knutson & Wimmer 2007). The dopamine system is heavily geared towards the

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ventral striatum, which, in turn, integrates the amygdala and the prefrontal cortex. The latter is the system in which anticipatory planning is located, whereas the former is mainly the place where emotions are triggered. The striatum has two parts, with the dorsal striatum mainly focused on experience utility, which especially processes neuronal activities generated in the limbic system. Although the specific aspects of this picture are by no means empirically settled (Tom et al. 2007), there is increasing support for the distinction between experience and decision utility. This relates to many approaches in the literature that distinguish, for example, between the liking and the wanting system in the brain, or between different aspects of choice behaviour, either short-sighted hedonistic or long-term planning (for a survey, see Knutson & Greer 2008; Brocas & Carrillo 2008). Therefore, Coleman’s early proposal is strongly supported both by recent theoretical advances and empirical results. The limits of knowing yourself In our context, there is an important consequence: we cannot assume that the acting-self has full knowledge about the objectself, and vice versa. On the surface, this As the result of is a strange constellation, but it reflects evolving phenotypical the evolutionary advantage of phenotyp- plasticity, the actingself ic plasticity. That is, if the environment does not know is increasingly unknown, the acting-self about the needs of the object-self, relative to cannot know the immediate effects of a given environment. unknown environmental features on the object-self. Yet, at the same time this enables the acting-self to explore new environments, whereas otherwise the organism would stick to the current environment. This gap is further

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enhanced with the emergence of language. Once language mediates between the individual and the world, the needs of the object-self are also represented symbolically to the acting-self, which, however, implies that there is no internal representation. That is, even though the ultimate measure of goal achievement seems to be internal to the individual, its capacity to act is externalised. Phenotypic plasticity implies that the environment is not simply a given to which the organism adapts, but it carries essential information about how to adapt. Phenotypic plasticity In other words, the extended phenotype implies that the is not simply an extended adaptive extended phenotype is mechanism, but it carries the necessary not simply an adaptive knowledge to manifest proper function- mechanism, but it plays an essential ings at all. In the Darwinian paradigm, role in distributed the environment and the genotype inter- knowledge processing act causally to transmit knowledge inter- between genotype generationally (for an early statement, and environment. This applies for see Odlin-Smee 1988). In the analysis agency, too. of agency and intentionality, it means that agency is only possible because of the externalisation of the functioning of the acting-self. From this, two consequences for the analysis of agency follow, with direct consequences for economic categories. First, consumption is an active learn- The acting-self ing process, as the acting-self needs to discovers the needs of the objectself discover which action causes a positive in a discovery feedback from the object-self. There is procedure driven by no such thing as a given utility function. behavioural drives Second, there is a lot of room for error such as curious play. in the process without opening up a direct solution, because the acting-self is not necessarily aware of the error, as internal

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benchmarks are missing. That is, the person can be stuck in local optima without ever achieving global optima. We can safely assume that the need for curious play is an important input for this evolutionary process within the individual, because play and adventure might randomly push the system into new states that might break up suboptimal local optima. This basic model is further supported by the recent economic research into happiness, which was triggered by the familiar observation (the so-called Easterlin paradox) that increasing levels of income are not associated with increasing levels of subjective happiness (Frey & Stutzer The distinction 2002). This is easily explained by the between object-self distinction between the two aspects of and acting-self can the individual. The biological system explain empirical facts such as the of the object-self is mainly an internal Easterlin paradox on equilibrating device, independent of happiness. Happiness the external representation of goals and does not linearly states that operate in the acting-self. The increase with income because information acting-self may locate the individual in about need fulfilment a relational space of characteristics, in is generated by which status considerations may play context-dependent an important role. There is a long, yet comparisons. marginalised tradition in economics on that idea, which began with Veblen (1899) and continued with Frank’s (1985) seminal contribution. Status has been shown to be an important ingredient in human learning via imitation, as one mechanism in information diffusion is to observe the behaviour of high-status individuals, who have proven to be successful (Richerson & Boyd 2005; a similar hypothesis underlies the social network markets approach to the creative industries by Potts et al. 2008). However, status is a relational category, which means that in

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status competition the absolute level of income achieved does not matter for decision-making. Therefore, the level of satisfaction of the object-self is totally independent of the level of decision utility, which corresponds to the categories that underlie decision-making and which measure relative success in a reference group of individuals. Thus, a central feature of our model of the individual is uncertainty and ignorance about the determinants of satisfaction of the object-self. Therefore, consumption is an explorative and creative act, and it happens in the trodden paths of habit and social convention. For the analysis of identity, this implies that the identity of the acting-self is externalised, whereas the object-self remains within the boundaries of the body. Externalism and adaptation We can further submit that satisfying the object-self is based on neurophysiological mechanisms that relate to basic biological reproductive success. However, this does not imply that observed consumptive behaviour Coevolutionary can be directly reduced to genetic theories are based determinants, because of the fact of on the fact that the genotypic information phenotypical plasticity. All we can say transmission is that long-run average consumption is necessarily patterns should converge towards maxi- externalised to the mising satisfaction of object-selves, cultural environment, such that divergent and that this satisfaction will correlate forces of signal with differential reproductive success. selection and natural Now, because the linkage between the selection cannot object-self and the acting-self is medi- be disentangled, in principle. ated via language, this implies that there are group-level effects on individual reproductive success.

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Information related to reproductive success is externalised in the social context of individual decision-making. This is the reason behind the coevolutionary theories about human behaviour, which suppose that there are two driving forces, biological and cultural evolution (Jablonka & Lamb 2006). As I have already shown, this does not preclude the possibility of divergent evolution, driven by the forces of signal selection. With reference to agency, we can say that linguistic representations of determinants of object-self satisfaction are external parts of the acting-self. These Correspondingly, representations convey the necessary goods are not simply knowledge for making decisions. Again, satisfying wants, but represent the we observe a difference from the stan- knowledge necessary dard economic model. In that model, to express wants at goods are immediate determinants of all, being mediators individual utility. In our model, goods as (as in ANT). symbols are external complements of the acting-self, carrying knowledge about what kind of good might contribute to the satisfaction of the object-self. For example, culinary culture is not simply a way to directly maximise utility, because culinary habits differ widely across human environments. Therefore, the culinary items themselves carry knowledge about which items might possibly enhance object-self satisfaction. I cannot simply choose them according to some direct signals sent by my object-self, but it is the culinary items that choose my behaviour, to put it provocatively (just as ‘language speaks us’). This corresponds to the ANT approach: the food item becomes a mediator; that is, part and parcel of my agency. Food choices are strongly determined by environmental determinants (Wansink et al. 2009). This externalist approach to the individual can be further

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extended when we consider the instruments that are needed to get satisfaction. This is recognised in the economic literature, especially in Becker’s (1996) con- Gary Becker’s theory sumption theory, which distinguishes of instrumental between fundamental and instrumental and fundamental preferences fits into preferences. Interestingly, Becker’s the approach proposed approach seems to be very close to the here; the difference model presented here, apart from the lies in the recognition fact that Becker does not consider the of the uncertainty of this relation. role of ignorance. He assumes that the capability to fulfil fundamental preferences depends on the skills needed to handle instruments that eventually achieve this goal. In his parlance, this is ‘human capital’. However, human capital formation is itself a process external to the individual (see Davis 2003). Becker’s approach is therefore externalist, contrary to his methodological individualism. This idea can be further extended to include all instruments that are related to the ultimate goal of satisfying the objectself. In such a framework, what would be the role of individual identity? This has been made most explicit in White’s (2008) notion of identity. White posits that Identity is an essential identities are primarily modes of control functioning in terms in complex social networks. Therefore, of control in complex all instruments that assure proper and networks with other individuals. The notion sustainable functionings in networks can of possession includes be seen as being a part of the individual all other instrumental identity. In the externalist approach, means of control, thus this includes the entire set of material being reflected in the basal brain mechanism instruments that make up this identity, of loss aversion. again reflecting the fundamental notion of bimodality. I propose that this is the ultimate root of the empirically

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well-established notion of loss aversion, which underlies prospect theory and is related to the behavioural inclination to assert possession over goods (Trepel et al. 2005; Tom et al. 2007). There is a tendency to include possessions within the identity of an individual, because those possessions determine the capability to control. It is crucial to recognise that this capability to control is not an immanent property of the individual, but depends on the interests of other individuals in those attributes. Therefore, the major determinant of the value of individual instruments does not lie within the individual, but lies in the social networks in which an individual is embedded. The evolutionary model of the individual I summarise the model of the individual that emerges from this analysis in Figure 7 (for earlier related approaches, see Elworthy 1993).

Figure 7. The evolutionary model of the individual

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The individual is a dynamic system comprising different levels and parts. There is only one level that has no external reference by definition; this is the body. In the evolutionary The body includes the brain. This is, model of the however, a distinct phenomenon, as individual, the it is embedded in a ‘meme pool’, that organismic level stands out because it is, external artefacts interlinking with is the only level with neuromemes (so I use the term ‘meme’ an absolute barrier as a shorthand here). Yet, there is a bar- between different rier between individuals, even though individuals. they might build a group; namely, there is no means of direct introspection into another individual. All introspection has to work via symbolic systems, which include even static aspects of the body such as stature (Männel 2002). This barrier is what makes the level of the organism so special (Wilson 2007). On all other levels, there is a direct interaction between the individual and other entities in its environment: • On the level of the genotype, this works via shared

genes across individuals. • On the level of the extended phenotype, interaction results from the inclusion of things and other individuals into the capabilities of an individual. • On the level of the brain/mind, these are the neuromemes that are interconnected via artefacts. Individual identity emerges from the interaction of these levels; it is therefore an externalist phenomenon. Yet, it does have an internal anchor, which is the barrier between organisms, and is manifested in the distinction between object-self

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and acting-self: the object-self is the ultimate reference of identity, because it is the unifying physical fact that links up chains of events from birth to death. The levels manifest distinct processes both horizontally and vertically, which all follow an evolutionary pattern, that is, a VSR dynamics. On the respective levels, a different fitness criterion holds: • On the genetic level, it is dif-

ferential reproductive success of genes (and not genotypes). • On the extended phenotype level, it is relative control power determining social success in network interactions. • On the brain/mind level, it is relative neuromemetic reproduction in cultural evolution.

The levels relate to different fitness criteria of the corresponding VSR dynamics, and they are vertically integrated, because of relations of supervenience and downward causation.

These three levels are linked up with each other via the vertical relations. We can directly realise that the model is non-reductionist, as it features coevolutionary dynamics, which converge at the level of the extended phenotype. That is, cultural and biological evolution operate independently of each other, but they are interlinked via the effects of both on the relative success of social competition in networks. However, there is a lever that connects the two levels; the relation between the acting- and the object-self. The valuations of the object-self emerge from the ontogenetic process that is generated by the genotype, so that there is a feedback between biological fitness and satisfaction at the level of the object-self. These valuations inhere in brain processes, thus they directly emerge also at the level of consciousness, in the most general

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sense of satisfaction or relative happiness and well-being. The acting-self therefore always operates in a tension between these experienced valuations that do not convey precise information about causes and the deliberate formation of action and action capabilities at the level of the networks. We have now prepared the ground for the explicit discussion of the economics of identity in the narrow, intra-disciplinary sense. The main insight of this chapter lies in the relevance of basic ontological problems of identity across different areas of scientific research into the individual. This is why I talk about the bio-logic of identity. The bio-logic of identity is the foundation for the economics of identity, so that the necessary linkage between the ‘economics of . . .’ and methodological individualism is broken.

8 THE ECONOMICS OF IDENTITY Game theory with identities The importance of identity in economic theory can be best explained by the role of types of players in achieving optimal solutions in strategic interaction. Take the classic workhorse example of the ‘prisoner’s dilemma’ (PD) game, which has the following exemplary pay-off structure in terms of years in jail: Not confess

Confess

Not confess

1/1

5/0

Confess

0/5

3/3

The two prisoners cannot directly communicate with each other, and they face the choice over a deal offered by the judge. Clearly, if they both kept silent, they would optimise the collective benefit, but both also know that the other might be lured by the offer of freedom. So they would both prefer the suboptimal solution to confess, which results in a collectively worse outcome.

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As a one-shot game, there is no other solution than the noncooperative one, where the two prisoners both confess, ending up in a Pareto-inferior Nash equilibrium. In the context of classic game theory, the only way to avoid the dilemma is to move to a repeated game structure in which strategies can also serve as punishments. Then, if one prisoner cooperates and the other does not cooperate, the first will be able to punish the second in later rounds of the game (which is Axelrod’s famous ‘tit-for-tat’ solution). If future losses from not cooperating are big enough, it turns out to be rational to cooperate. Another solution to this problem is via shared identities, which in economics translate into interdependent preferences (Sobel 2005). This can happen in different ways. One is that the two prisoners share an identity in terms of directly taking the utility of Alter into consideration (classic on this is Taylor 1987: 112ff.). Then if one prisoner does not cooperate and the other cooperates, the non-cooperating In standard game prisoner will directly include the loss of theory, interdependent preferences between Alter in their preference function, thus Ego and Alter give rise reducing the gain from not cooperating. to utility functions Of course, this implies that the pay-off that maintain a function is no longer strictly a prisoner’s cooperative solution. dilemma, but what counts is the underlying structure. The game remains the same, in the form of physical pay-off (years in jail). But because of shared identities the two prisoners will manifest underlying utility functions that will trigger cooperative behaviour. This solution raises the problem about how identities can be known. Merely having interdependent preferences is a different thing from knowing them. At this point, the internalist

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foundations of strategic game theory come into play: as long as Ego can only operate on the basis of explicit knowledge of Alter’s preferences, there would be a need for a binding inferential mechanism. This is the reason why this problem can best be solved in the context of evolutionary game theory: identities take the form of correlated strategies, such that there are triggers that coordinate strategy choice among populations of players, and such that the imposition of some minimal structure, in particular, neighbourhoods, safeguards the attainment of the cooperative solution (Skyrms 1996: 63ff.; 2004: Chapters 2 & 3). Thus, independently of the specific reasons why an agent may be cooperative, there must be a way to signal this to the other agent. Even in the case of the one-spot PD, there is a difference between the case where the two prisoners just by happenstance have met to commit a crime without knowing each other, and the case where they have had an ongoing relation beforehand. In the second case, they would know the other player’s type. Two problems arise here. However, as long as The first is that in classic game theory, strategic choices are players are just opportunistic without made, this induces further modification, so that cooperation the problem of how cannot be a feasible strategy for them. to recognise shared identities and how to Prior knowledge simply counts as a sunk signal them credibly. cost for present decision-making, hence to be disregarded. Second, even if a player were unconditionally cooperative, how can the other player trust a signal that shows a cooperative attitude? Players can overcome these two problems only by adopting an identity that cannot be changed and relying on signals that cannot be faked, at least in principle. The first part of the

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solution has been analysed in a classic contribution by Frank (1988). The only way to fix an identity is to give it an emotional basis, which makes it inaccessible to rational choice. In more recent analyses of evolutionary psychology, this position has been vindicated; we can safely as- The fundamental sume that the evolving human species duality of cognitive-dedeveloped an emotional set-up to ease liberative and cooperative solutions, because human affective-emotional functionings in groups that shared such a structure the brain is the would have succeeded in competition evolutionary solution with other groups. Viewed from evolu- to root identity in tionary theory, the human brain needed emotions that are beyond conscious to evolve mechanisms that, first, allowed control. for credible signals of the identity of agents, and, second, enabled individuals to detect cheaters (Cosmides & Tooby 2005). Thus, we can present a game-theoretic rationale for the observed modularity of the brain, especially with regard to the separation between deliberative and emotional functionings, with the latter being partly independent of conscious control. Group selection, identities and language However, this argument from group selection relies on mechanisms of group boundaries, which cannot themselves have a genetic basis, given the observed plasticity of human beings, especially with regard to culture. Therefore, evolution can only foster the emergence of the capacity for forming identities, but not the identities themselves. Thus, what needs to be added is a layer of identity that fits human beings for almost arbitrary phenotypical flexibility, but at the same time builds on the capacity for emotional commitments, closed to rational opportunism.

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This has emerged via language as a group marker. Human language poses a formidable challenge to cooperation, transcending the dangers of rational Language is a problem opportunism, because language allows and its solution at for the construction of arbitrary coun- the same time. It terfactual worlds, and hence identities. creates the possibility of counterfactual Language and lies are deeply enmeshed. cheating of identities, At first sight, the emergence of lan- but at the same time guage multiplies the original dilemma has evolved into a of cooperation. However, it also means medium for fixing identities. that evolution must have supported the emergence of a capacity to solve these additional dilemmas of language. There are three devices here: the cost of acquiring a language, the historicity of language and the commitment to truth. It is an interesting fact that children are not born with a language, and that the capability of learning one declines during the developmental process. Apart from especially gifted individuals, the vast majority of people never learn a second language without showing markers of this diminished capability. This applies even to minor modifications in dialects. In fact, language allows for immensely complex variation and recognition of the slightest phonetic, semantic and syntactical differences, which are very difficult to learn in their entirety, and which stand out when using a second language. Therefore, these distinctions are a highly reliable marker of identities in terms of group affiliation. We can extend this observation to all aspects of human symbolic systems, and add the evolutionary hypothesis, based on the theory of signal selection, that only non-functional markers of symbolic systems can serve as markers of identities (on this point, see Munz 1993: 25). This is because a functional

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marker can easily diffuse across group Language is a costly group marker and it is boundaries, as it serves a purpose that the medium into which is independent of this group identity. individual identities Only a costly non-functional marker are embedded will resist those forces of diffusion. We as a historical phenomenon. can speculate that most aspects of nonfunctional items in human culture are ultimately related to this role of group markers. Language allows for the narrative construction of identities, which means that an identity is actually a history told in a community of language users (Ross 2007b). Interestingly, this aspect closely follows the Kripkean theory of proper names because the ultimate anchor of identity is a story that leads back to certain origins, and which in terms of the concatenation of events is singular in principle, with a probability close to zero that history will repeat itself for another individual. Language allows for the reflection of individual histories that in the end establish identity. The embeddedness of identities in languages is twofold. First, language is the medium in which the narrative of identity takes place. This narrative is shared in a group, so that it cannot be changed arbitrarily. Second, language itself has the property of historicity. As a result, once an identity has formed, it cannot be simply changed by individual choice, as it is embedded in a given practice of language use, which is a collective phenomenon. Finally, language is based on truth. This feature changes the conditions for signalling in a principled The use of way. Normally, the economic theory of language builds ‘cheap talk’ assumes that signals can be on a lexicographic preference for truth. faked with zero costs, because the use of language is almost without any cost (Farrell & Rabin 1996).

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However, as has been demonstrated in the philosophy of language, the very use of language might imply a commitment to be truthful and relevant (in Gricean terms, see Lycan 1999: Chapter 7). If there is a cost of lying, or if there is an absolute, hence lexicographic, preference for truthfulness, the second part of the problem of cooperation is neutralised (for a gametheoretic approach, see Demichelis & Weibull 2008). There are two main reasons for accepting this proposition. One is to assume a principled truthfulness, which is based on the assumption that language as such will fail if there is no commitment to truth. The other is an evolutionary one, namely that human beings seem to be equipped with emotions that make it easy to discover lies and make it difficult to lie (for a classic, see Ekman 1985). Ross (2005: 291ff.) puts these reasons together in the argument that standard game theory is Strategic interaction between human missing an intermediate level. On the individuals consists one hand is the ‘game of life’, which is of three layers: the modelled along the lines of evolutionary game of life in which game theory (see also Binmore 1994). biological dispositions evolve, the game of On the other is the standard strategic identity, in which game, that is, the particular setting of phenotypical plasticity strategic interaction. In-between is the is shaped, and the game of identity. The game of identity specific strategic games humans play. builds on capacities that evolve in the game of life, and it fixes the types of players in the strategic game. From I to we We can summarise these different insights in one proposition: a species with complex, language-based social interaction has an evolutionary rationale to develop individual identities

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that at the same time imply shared properties across those identities. Shared properties are the precondition for solving strategic dilemmas through the emergence of correlated strategies. Given the central role of language, the condensed expression of this is the transition from ‘I’ to ‘we’. For example, Hollis (1998) has shown that strategic dilemmas of trust can only be solved when individuals perceive themselves as acting as a team, such as a soccer team. This presupposes the capacity to make binding statements of the kind ‘we A central human will do this and that’ instead of arguing capacity is the from the mere ‘I’ perspective. Sugden capability to form ‘we’ relations. These (2000) has introduced the concept of relations can resolve team preferences, which applies to all many standard kinds of collectives that are based on dilemmas of strategic shared identities, such as the family as interaction. a primordial unit. Team preferences imply that many standard dilemmas in game theory can be resolved, because individual decision-making directly follows a collective decision adopted by all agents who surmise a team preference in their individual choices. In Tuomela’s (1995) extensive philosophical treatment of these issues, it becomes evident that team preferences cannot be simply understood in terms of the standard economic approach towards individual autonomy and voluntary agreement. Here, the Condorcet–Arrow impossibility theorem applies: there is no way to reconcile the two notions of a collective preference and individual autonomy. Tuomela argues that collective intentionality emerges in all systems that allow for a power differential across members of a collective, such that the behaviour of individuals is governed by three different sets of rules and beliefs:

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• rules that emanate from a collectively recognised

authority, which can also impose sanctions against deviant behaviour • a set of endogenously emerging norms • a set of shared ‘we’ beliefs underlying the set of norms, through which individuals share a readiness for joint action, and this is common knowledge in the collective. Tuomela further distinguishes between operative and nonoperative group members, which means that the latter at least implicitly accept the actions of the former on behalf of the collective. Thus, a human collective appears as a task-right system for which power asymmetries are constitutive. In our context, there is no individual intentionality without collective intentionality, and therefore no individual intentionality without implicit power relations with other individuals. As Sen (1995) has shown, this conclusion, which ultimately results from the impossibility theorems on collective preference functions, can only be reconciled with a notion of individual freedom if the process of generating and expressing individual preferences is designed to minimise power differentials. This leads back to the role of language. As Elster (1998a) and Viskovatoff (2001) have argued, rationality can take different shapes beyond the ‘rational choice’ pattern underlying standard game theory. An important form of rationality is ‘deliberative discourse’, which aims to reconcile viewpoints among individuals by rational argument. In deliberative discourse, language is used to shape the preferences of the individuals who interact strategically.

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Communication does not simply signal ‘We’ beliefs evolve out identities, but it also serves to shape of an ongoing rational discourse in which identities. This argument closes the cir- human individuals cle: once every game is seen as embed- mutually influence ded in a language game that establishes their preferences and ‘we’ relations among the individuals, end up with enhanced interdependence and interdependence of preferences becomes shared identities. the normal case, and purely individual This turns standard preferences are a special case (Sugden internalism in game theory into 2000). externalism. This approach turns standard game theory from a mentalist and internalist theory into an externalist one. The formation of identities becomes part and parcel of the strategic setting as such. In terms of our model of the individual, we can state that the acting-self is embedded in an ongoing process of communication in which its identity emerges, which then guides decision-making in a particular context. The acting-self is a ‘self within groups’ in an essential way. The Akerlof and Kranton approach to identity economics Identities build on relations among individuals. This idea lies at the basis of the only systematic attempt so far to include identity in standard economics: Akerlof and Kranton’s (2000, 2005) model of identity. The A/K model starts from a utility function of the following type: Uj = Uj (aj, a–j, Ij)

(1)

In the Akerlof and Kranton model, identity is a property of network relations that are patterned according to social categorisations of individuals. Identity generates utility in the standard economic sense.

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This function establishes two elementary facts. First, utility is created in a network of actions of individual j and the actions of all other individuals a-j. Second, utility directly depends on the identity Ij. This identity is a complex phenomenon and is in turn described as: Ij = Ij (aj, a–j; cj, εj, P)

(2)

As we see, identity is also defined as a network phenomenon. This implies that actions always have a two-level effect. One is the effect on the state of the individual; the other is the effect on identity. For example, if I buy a car, my state changes via the different services made accessible, such as transport. At the same time, the car will affect my identity, if only that I become a ‘car owner’, which might have implications for my self-perception. If the car is a status good, many other effects are added, such as my identification with a particular group of people. These effects are covered in the other three expressions in the utility function. P is a set of social prescriptions that determine the application of social categorisations cj to a particular individual j. This application is determined by the actual individual features ej that are the basis for the categorisation. Thus, P appears to be the mapping from εj to cj. The A/K model gives a very good account of one of the essential economic aspects of idenIn the network, tity, which is related to the network identities are embeddedness. The central concept interconnected via is that of externalities. As we have the externalities of seen, the actions of others affect Ego’s individual actions on other individuals’ level of utility. However, this is al- identities. ways mediated via identity. There is a

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direct and an indirect channel. The direct channel is obvious. For example, if I violate the dress code of a particular social network, this might first reduce the utility of my chosen outfit, because I do not feel at ease with that violation. There can also be direct feedbacks when others frown on me. The indirect effect is more interesting. Why do others frown on me? It is because when I do not follow the dress code, I question their identity. So my individual action, which does not affect others’ utility at all, still changes their state of satisfaction if they feel that their identity is threatened. This externality is very important, as it provides a reason for a central phenomenon in stabilising social order, namely, second-order punishment, which is difficult to explain by standard economics (Bowles 2004: 387ff.). A second-order punishment happens when a bystander of an interaction feels obliged to punish somebody who does not punish another who is deviant. For example, if I violate a dress code, and another person does not frown on me publicly, others will frown on him or her. Given the A/K model, it is immediately evident why this is so important. If I alone change my outfit, in fact I do not question the categorisations. But if a second person seems to agree, there is the potential of a new categorisation emerging. This threatens the identities of all bystanders, such that they feel motivated to punish. In other words, second-order punishment internalises the external effects of the original interaction. Therefore, the A/K model offers an explanation of why systems of categorisation are stabilised by individual actions, which is a major explanation of social structuration. The A/K model of identity is a linguistic one in the sense that the core feature is the system of categorisations.

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Categorisations are not simply fixed but depend on individual properties. They are defined and determined in the specific case by an act of predication, which, in turn, has to depend on linguistic categories. Thus, individual The A/K model is properties and the categorisations are based on language, interdependent. The complexity of this because categorisation relation is easy to understand if we is predication. compare gender with sex. At first sight, sex determines gender. Sex may be regarded as a property, gender as a categorisation. Now, queer theory asserts that there is no necessary relation between sex and gender (or that the relation is indeterminate). This would imply that the categorisations themselves define the properties. If individual identity simply follows external categorisations, a person might just accept the established ones and therefore takes a set of properties as a given, for example, ‘feminine’ ones. However, there is also the option to question the categorisations and to adopt a set of properties that match the preferences. This example shows that the A/K model is incomplete, because it relies exclusively on categorisations to generate levels of utility. Clearly, this repeats exactly the same problems as with the Aristotelian discussion of individuality. Categorisation is predication, and the A/K model implies that the person simply vanishes behind the categorisations. Social identity versus personal identity In his criticism of the A/K model, Davis (2007) therefore argues that the model only includes the social identity of an individual, and proposes that it needs an anchor, which is personal identity. He modifies the utility function:

182 PIj = PIj [Uj (aj, a–j, Ij)]

The Economics of Identity and Creativity (3)

In this function, personal identity is the ultimate source of valuation. A distinction is made between In Davis’s extension the utility measure and personhood. of the A/K model, personal identity is It is the person who values levels of seen as the anchor utility that are generated by the A/K and ultimate source of utility function, including a set of so- valuation of the social cial identities. The question is whether identity. this is just a kind of meta-preference, which ultimately can also be cast into the language of utility, or something different. Indeed, the A/K model is formally homologous to Becker’s theory of preferences (Sobel 2005), which implies that we could just equate social identities with instrumental preferences, and personal identity with underlying fundamental preferences. This leads into a logical circle, unless the fundamental preferences are treated as exogenously given. In their discussion of the A/K model, Kirman and Teschl (2006) therefore propose to distinguish between a ‘where’ identity and a ‘who’ identity (beyond the ‘what’ identity catching the basic bio-psychological characteristics of an individual). The A/K model explains revealed preferences as directly expressing a choice of social identities, so it explains where in the social space an individual is located (the ‘where’ identity). It does not explain outright deviant behaviour that might reject conformism in the first place, in search of another identity. This is the ‘who’ identity. This approach seems to grasp an important fact of life, namely, that some people at a certain stage of their life, when they no longer feel satisfied with a set of social identities, try to break it up.

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This scenario can be easily accommodated in our evolutionary model of the individual. In the externalist definition of the acting-self, the A/K model fits perfectly because it is purely externalist in the sense that the cat- The social identity egorisations are exogenously given, and relates with the individual choice depends on them. But acting-self, personal identity with the at the same time, the object-self is the ul- object-self. timate source of valuations (experience utility). However, as detailed earlier, there is a knowledge gap between the two selves, because the valuations of the object-self cannot be the basis for individual choices. That means that the search for the ‘who’ identity cannot be driven by preferences expressing the A/K ‘where’ identity, but only by a most general feeling of well-being. This can be further detailed as a set of emotions that interact and determine the state of well-being. For example, a certain state of the individual might trigger fear facing uncertainty, such that action is taken to reduce this emotional state, but such action cannot directly be based on a reliable and detailed knowledge of cause and effect. However, this still leaves open the question of how a particular action comes into being, apart from mere random outbreak. In this regard, Kirman and Teschl (2006) propose that the ‘who’ identity relates to the desire to realise a certain self-image. Social identity is a means to attain this self-image. One could argue that the state of the object-self is reflected in a measure of dissonance between current status and self-image. I propose that self-image is entirely different from social identities, because it involves an individual developmental trajectory through time, hence fulfilling the criterion of individuality in the ontological sense. Self-image is rooted in the past history of the individual, and it is guided by future

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projections. These projections are individualised, in turn, because they refer to a vision of one’s own future individuality, and because they are informed by imitation of other individuals. That is, the self-image does not relate to social categories, but to personalities (see also Horst et al. 2006). This notion of ‘who’ identity follows the Aristotelian approach, which would imply that personal identity cannot be categorised at all, because it is beyond predication. It is irreducible personhood. Davis (2007) argues The ultimate that personal identity is based on a set of valuations by the deontological commitments. These flow object-self refer out from self-image as the requirements to a self-image that emerges as that result from adopting that image. So an evolutionary it might be more appropriate to speak trajectory connecting of reasons in general, which directly an individual’s past, corresponds to our previous discussion present and future. This is irreducible of calculative utility versus rational rea- personhood. soning. Reasons support a self-image in two senses: first, the individual provides reasons for adopting this self-image, and second, they provide reasons for taking particular actions. Anchoring the economics of identity in language analysis This conception finally closes the externalist framework. This is because I can now argue that both the ‘where’ identity and the ‘who’ identity are phenomena of language. What is the difference between the two? The difference lies in the anchoring in the object- or the acting-self respectively, and correspondingly in the different role of predications in asserting one’s identity. The social identity in the A/K model builds on explicit categorisations, which can also be part of reflections on the level of consciousness.

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This means I can reflect upon my social identity by recognising my allegiance to certain social groups, and I can also communicate with others about this, providing reasons for my actions in terms of my social identity. Thus, the social identity corresponds to the level of the acting-self. In the A/K model, this identity is given exogenously, whereas Horst et al. (2006) argue that the set of social prescriptions itself evolves continuously, because the individual actions also change the meaning of social categories incrementally. Thus, for example, if I assign myself to the Social Democratic Party in Germany, the nature of this assignment certainly has changed over the past 30 years. This raises the problem of how we can speak of a stable identity at all (Davis 2005). For this, we need the notion of personal identity. The personal identity is a linguistic category, too. It does not rely on categorisations, but on storytelling, providing reasons by pointing out the consistency of actions through time (Ross 2007b). As this identity is based on the Social identity is object-self, there is no way to give a based on linguistic direct reason for the chosen actions, categorisations, but only to claim that the action stays in personal identity is based on storytelling. continuity with one’s self. In this claim, projections of the future self play an important role, which builds on counterfactuals. Out of these, commitments are generated that make personal identity a stable phenomenon. However, this stability is not directly accessible to predication, so that it corresponds to the physical unity of the body, and hence the object-self. In the same way that the body can be seen as a point in a chain of physical causes and effects beginning with the moment of birth, personal identity corresponds to a chain of descriptions of connected events along Kripkean lines.

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In sum, the economics of identity can be reformulated in externalist terms. The stability of this identity is by no means a given, because the underlying structure is an evolving entity. It depends on the interaction between the two levels of the individual, the acting- and the object-self, to Identity is which the notions of social and personal continuously evolving identity correspond. We cannot know in conjunction with the evolving system whether we are the same, because we of language, which can only perceive that we are the same provides the external given the fact that we perceive a closed anchor for stabilising chain of events leading up to our current identities. state. Therefore, we need to rely on external anchors to assert and justify our assumption of identity. These anchors are not stable either, because they are a part of the evolving system of language. However, they provide stability in two senses. First, they provide the acting-self with standards of decision-making; and second, they embed the object-self in a history of individual changes that is consistent with closed causal chains. Identities are outside us: what it means for economics This conclusion allows us to take a significant step beyond the current literature of the economics of identity, and to complete the final turn to naturalism, which is to conceive of identity as an analytical category of cultural science. The externalist view of identity requires the explicit consideration of the role of artefacts in evolving identities. Artefacts directly reflect the interaction between different levels of self and identities. For example, take again food habits. Typically, food habits are part of a social environment, because dishes are often standardised and might also reflect certain behavioural patterns in social groups. At the same time, individual food habits go

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back to a personal history of food use. In the externalist Thus, eating a certain food might reflect view of identity, consumption is both social and personal identity. The constitutive for food item is an external anchor of the identity, and it does formation of identity. The repetitive use not just produce of certain foods is a part of the chain utility. of events that constitute personal identity, even though it is simultaneously involved in stating social identities. The same can be said of many other consumption items, such as dressing habits. Therefore, from the cultural science point of view, identity is inextricably enmeshed with the material environment surrounding an individual. Changes of identities, and hence cultural change, will be reflected in changes of this material context, such as in changing dress standards. Even the slightest modifications can express different identities. Therefore, we reassert our earlier proposition that goods are not simply items of physical consumption, but bimodally operate as signs (compare Dolfsma 2008). Artefacts do not simply generate utility, but at the same time they make up the very identity that in standard economics is seen as being the basis for the utility function. In a sense, this radicalises the ‘revealed preference’ approach in The externalist view economics. Revealed preferences are of identity matches the externalism of the descriptions of choices that do not revealed preference assume that there is a real utility func- theorem, but eschews tion behind them; that is, the utility its underlying ‘rational function is just formally describing the choice’ framework. observed choices. This corresponds to a radically externalist position. In the naturalistic framework, this argument can be maintained, but the descriptive framework needs to be

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changed into an evolutionary one, eschewing the ‘rational choice’ framework underlying revealed preference theory. Instead, the agent behind the revealed preferences is a complex evolutionary phenomenon in which different levels of evolutionary processes interact, as I have posited in the model of the individual. What does this imply for the standard approach in economics? Looking at Akerlof’s (2007) work directly, the upshot is that explicitly considering identity in economics provides a new microfoundation for many insights that have been produced by Keynes and Keynesian economics, but which thus far could not withstand the attacks of rational equilibrium theorists. This close connection is theoretically sound The naturalistic from the cultural science point of view, economics of identity as the hallmark of Keynesian economics vindicates many is its explicit treatment of uncertainty propositions of Keynesian economics, in the economy. Thus, the economics because both are of identity provides a link between the grounded on the general problem of forming expecta- notion of radical tions under conditions of uncertainty, uncertainty. and the problem of asymmetric distribution of information in market networks. In the Akerlof framework, identity boils down to norms, which can be understood as rule-based behaviour. Following norms as rules is to reinstate identities through time and within contexts of social interaction. This approach allows us to explain some important empirical puzzles of macroeconomics, which remain in contradiction of rational equilibrium approaches. One is directly related to consumption behaviour, expanding on the theme of externalism in the theory of choice. Rational equilibrium theory posits that consumption should depend on permanent

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income, because people would exploit all possibilities to smooth consumption over their lifetime. In fact, consumption follows changes in current income. There are different reasons for this, some related to the fact that consumption expresses identities. For example, people’s identities change through their lifetime. It is not just that they take those changes into consideration and anticipate a developmental path, but also that they stick to certain behaviours that are normatively expected at a certain stage of life. As students they will adopt a lifestyle that is appropriate for a student, independently of any expectation of a higher permanent income later on. Further, an important part of individual identity is the separation of different streams of money into so-called mental accounts, such that the spending behaviour related to different accounts is normatively grounded. That is, income is not just a money flow, but is projected into a set of entitlements that make up an identity. Interestingly, once more vindicating the externalist account, financial innovations can break these systems of mental accounts, Identities find by the mere fact of introducing new expression in ways to distribute information process- norm-guided behaviour, which ing (Laibson 1997). Thus, credit cards underlies, for example, allowed for mixing up time horizons and consumption patterns the boundaries between income flows following current and asset valuations, ending up with the income, or wage rigidities. characteristic US pattern of declining savings rates and excessive current spending that ultimately contributed to the financial crisis of 2007–08. This identity-based consumption behaviour is also reflected on the other side of the coin, behaviour towards wage setting, which plays a central role in all macroeconomic

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theories about the labour market. Downward rigidity of wages can especially be explained by certain normative expectations of both workers and employers about what is constitutive in the relation between a worker and their company, in the sense of role models involving shared identities (Akerlof 1982). In this case, there is also a direct impact of neurophysiological mechanisms that support ‘money illusion’ on the part of the average human agent (Shafir et al. 1997; Weber et al. 2009). Money illusion results from the fact that money has been shown to operate as a direct reinforcer, such that it results in direct utility, measured by dopaminergic activity in the brain. This implies that there is an especially strong loss-aversion reaction in the case of nominal wage cuts, as compared with the same real wage cuts in an inflationary environment. In sum, an externalist account of identity can provide a systematic foundation for the phenomenon that many behavioural choices of economic agents are directly determined by their context of decision-making. This means that the information flows that agents perceive only make sense through relative comparisons with contextual facts. This coalesces into normguided behaviour. In economics, a special form of norm-guided behaviour is institutions. This is the final topic that I wish to tackle in this book.

9 IDENTITY, INSTITUTIONAL CREATIVITY AND THE CREATIVE ECONOMY Institutions as artefacts in the externalist approach to identity We have so far considered creativity and identity in terms of artefacts. As a final topic, I will consider the special case of institutional creativity, because identities are shaped by the institutional context of individual action. This From the viewpoint is not the place to develop a fully fledged of cultural science, cultural science approach to institutions institutions are an (which I define here as regularised pat- essential element of the externalist terns of social interaction, rooted in social approach to identity. sanctions, both formal and informal). Here it is enough to state that institutions are a determinant of identities in the same way that, for example, consumption goods are. Institutions very often underlie social categorisations, and they are used by people to achieve certain aims just as they use goods as tools for realising goals. In this sense institutions are things. The major difference lies in the complexity of the mechanisms that support the persistence and functioning of

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institutions. In particular, institutions are not pre-existing but created by human action, both intended and unintended. Institutions are part and parcel of an externalist understanding of identity, which implies that the notion of an economic agent cannot be defined independently of institutions. This idea played a central role in early US institutionalism, and in continental approaches affiliated with the Historical School (Hodgson 2004). In the course of the 20th century, it was abandoned by economics in favour of the notion of The interdependence the universal rational individual, only between identity surviving in certain fields of economic and institutions anthropology, and, of course, outside is a forgotten theme in early US of economics. In more recent economic institutionalism. theorising about institutions, the neat separation between the rational individual and institutions is maintained by the ‘new institutional economics’. The only line of thought that approaches the older ideas is the cognitivist understanding of institutions, which relates their functioning to cognitive models underlying individual choice, and which can be shared between individuals (Denzau & North 1994). However, this literature still seems to maintain an assumption about universal agent properties working behind the veil of divergent cognitive schemes. Cultural science claims that there is no way to conceive of an agent independently of the institutions in which their actions are embedded. In economic theory, a distinction between formal and informal institutions is widely recognised (North 1990). If we adopt a more sophisticated conceptual framework, both types differ from social norms and customs in that they are always supported by sanctions (Elster 1989). Formal institutions are supported by special organisations and hierarchical structures

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through which sanctions are applied; informal institutions emerge from social networks and mainly build on spontaneous sanctions, such as social ostracism. In the latter case, there is a difference between norms that people are aware of and others that they follow unconsciously, which might only become explicit when an external observer appears on the scene to communicate their observations. In economics, institutions are mostly treated as epiphenomena of problems of coordination, emerging as equilibria in repeated interactions, or emerging as a rational agreement among autonomous individuals (Aoki 2001: Chapter 1). Both approaches fail to assign the right ontological status to institutions. Clearly, given the role of According to sanctions in maintaining institutions, Tuomela’s analysis, Tuomela’s (1995) analysis is directly institutions are always relevant. Institutions always imply a based on collective intentionality, hence power differential in the sense that an shared identities, individual can be forced to comply with even if sanctioning an institution. However, as Tuomela power lies only with has made clear, this power differen- a subgroup in the population following tial can be accepted in the sense that the institution. the institution is based on collective intentionality, independently of whether only a subgroup of individuals has the explicit power to sanction. This notion is the direct bridge to our analysis of identity, as collective intentionality is a reflection of shared identities within the group that manifests the institutions. This approach differs from the standard economic approach to institutions, which separates the individual from the institutional environment. However, there is a relationship with approaches that define institutions as shared cognitive models, because these imply a convergence of identities. Yet, the shared cognition approach

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is an internalist one. In this chapter, I present an externalist account of institutions. Institutions are observer-relative facts Searle (1995, 2005) introduces a conceptual framework for institutions that is highly compatible with the naturalistic approach proposed here. His starting point is the recognition that institutions are a species of fact; that is, Institutions are they have ontological status (compare observer-relative facts, Lawson 1997). This is because they are hence are a part of the physical world. causes of actions. Institutions are only special in the sense that a distinction has to be made between observer-relative and observer-independent facts. For example, if we consider Mount Fuji, as a mountain it is an observer-independent fact that persists whether human observers watch it or not. But at the same time, it is an institution in Japanese culture, a cause of numerous social actions. As such it is observer-relative, because these causes depend on the existence of the observer. However, observer-relative facts are not simply subjective beliefs. For example, an institution such as a central (or reserve) bank can issue money, which ultimately rests upon the beliefs of the economic agents. Yet, money is a fact that is involved in myriad physical causes Institutions are and effects in the world. Further, ultimately rooted institutions are ultimately based on in ‘brute facts’, ‘brute facts’: chains of events that in- which drove their evolutionary volve physical action or things, such emergence. as real punishments or artefacts supporting institutionalised behaviour, for example a judge’s elevated chair. In this regard, Searle’s approach is compatible with the ANT proposition that physical things can

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be mediators in networks of social interaction. Further, the notion of ‘brute facts’ ultimately leads back to the embodied functionings of the concepts that provide the linguistic foundation for institutions. For example, many institutions even in modern societies have a religious background, which in turn can be reduced to historical roots in which embodied functionings played a central role for their evolutionary emergence (Burkert 1996). What does it mean if we say that money is created? Searle argues that the emergence of an institution is based on three different capacities: • One is language, which involves the possibility of

metaphors and manipulation of meanings. • The second is collective intentionality, which is

made possible via language and the emotional devices of the human brain. • The third is the capacity to assign functions, which is based on the more fundamental capability of transferring meaning. Thus, it is evident that Searle’s notion of institution can be rooted in the notion of conceptual blending, as developed earlier. Let us look at the details. Searle argues that the precondition for an institution coming into existence is a so-called status Institutions are function. Status functions enable lan- a phenomenon of language. They guage users to create constitutive rules. emerge via conceptual Constitutive rules create a social reality blending, or, in that is not based directly on pre-existing Searle’s terms, via forms of social interaction. The status status functions. function has the general form of , as, for example, a mountain counts as Mount Fuji in Japanese Shintoism. The status function underlies the more specific formula that directly defines an institution, and which matches Tuomela’s approach; this is the so-called power creation operator: , which is based on the collective intentionality that is expressed via a conceptual blend, such as treating Barack Obama as the President of the United States. This status function depends on collective intentionality and language. Therefore, Searle’s reasoning is directly supported by Wittgenstein’s private language argument: status functions cannot work for me alone; and Status functions it is impossible to set up an institution build on linguistically individually. This is because an entirely embedded collective intentionality. individual institution would have no reasonable way to define deviance. This corresponds to the impossibility of fixing purely private meanings in language. Therefore, language-based collective intentionality is the basis for institutions as observer-relative facts, the latter being understood in the ontological sense. This is why we can and must include institutions in our general notion of ontological creativity. It is straightforward to see the direct relevance of conceptual blending here, as outlined in Chapter 6. Searle’s approach is a detailed elaboration of the notion of performativity in institutional evolution. Going back to the example of the forex market (p. 124), the vacillation between the generic spaces of ‘gambling’ and ‘agro-futures markets’ can be seen as a different context C. Searle’s context C therefore corresponds to generic spaces. Once the context was shifted, it became possible to treat foreign exchange in the same way as agro-commodities, even

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though there are certainly differences in their functionings. This caused an explosion of institutional creativity in the financial markets, as many new status functions were created, which are based on conceptual blends, such as the invention of many further kinds of options and futures. Now, Searle (1995: Chapter 6) makes the important point that institutions depend on the ‘background’, by which he means capacities that enable individuals to act according to the institutional pattern. This notion is easy to grasp in an externalist approach, because we can say that institutions themselves are an essential part of the individual Institutions are a capacity to act. This straightforwardly constraint and an matches many approaches in economics enabling force at the that equate institutions with knowledge; same time, because they carry knowledge they store and transfer knowledge that in the externalist is partly subject-independent (Hayek sense. 1973; North 2005). That is, institutions structure social interactions that would otherwise face insoluble uncertainty. This structuration implies that one cannot simply view institutions as constraints, as many economists do. They are enabling at the same time, because without them the knowledge to act under uncertainty would simply not exist. It follows that institutions are a part of individual identity. In our model of the individual, this refers to the acting-self. Searle argues that institutions work because individuals develop skills that are specific to these institutions. Such skills are neurophysiologically embodied dispositions. Behaviour according to institutions is not simply guided by incentives to follow institutions, but mainly by dispositions to do so, without necessarily knowing the full extent of the institution as it could be described by an external

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observer. The notion of rule-following is misleading in an essential way, then, because there is simultaneity between the functionings resulting from the In Searle’s terms, dispositions and the behaviour match- rule-following is in ing the institutions. It is not necessary fact manifesting the disposition to to represent institutions internally to be behave in a pattern able to follow an institution. This is the corresponding to the externalist viewpoint: an institution is rule. Dispositions an external trigger of neuromemetically result from an evolutionary process. embodied dispositions, such that institution-guided behaviour is reproduced via the mutual observation of agents acting under a certain institution. This externalist approach to institutions posits that rule-following flows from the formation of an agent-identity, which corresponds to institutional structures. As with all externalist arguments, the only way to explain this is by evolution. The fit between individual behaviour and institutions emerges in an evolutionary process in which both the individual and the institutional level interact as transmitters of knowledge, enabling the functionings that work behind the observed reproduction of institutions. Cognition and the evolution of money It seems appropriate to make this argument more transparent by discussing a case study. This is money. In economic theory, money plays a central, yet special role. It is treated as a mere transactional technology for enabling indirect exchange, and it does not directly enter the utility function. In the latter context, money is a veil. On the other hand, money is widely understood as the institution at the core of the modern economy, including capital and financial markets. Therefore,

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money is a sort of experimentum crucis (critical experiment) for cultural science as a foundation of economics. Money is one of the groundbreaking economic innovations in the emergence of the modern economy, and it certainly plays a central role in any explanation of why the Western world underwent industrialisation whereas China did not, because China discontinued its earlier tradition of creating monetary institutions. In this picture, we can draw all the elements together that we have developed so far, ending up with a hypothetical account, which is supported by many observations. I will not concentrate on historical details, but the underlying evolutionary dynamics. The central question is: how can we explain the difference between a mere good used in indirect exchange and the institution of money? For this, it is most appropriate to refer to Carl Menger’s (1892) influential theory of the evolution of money, which has been well received in modern economic literature too (e.g. Schotter 1982). Menger argued that for money to emerge, a necessary condition is the simple fact of a difference between the sale and resale price of a good. Among a group of individuals who barter goods without money, the Carl Menger presented problem of matching dyadic exchanges an evolutionary can only be solved if some people are account of the emergence of money. willing to keep goods for some time even if they cannot use them by themselves. This is only possible in the longer run if the resale price of the good is sufficiently high. From this it follows that traders will converge on the use of goods with that property, which is, in turn, determined by their physical properties, such as storability and divisibility for future exchanges. Further, it should be expected that the

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good will remain scarce in the future, such that price expectations are stable. Given these conditions, a mechanism starts to operate that will cause an increasing demand for the good in question, thus further enhancing its saleability. However, Menger adds two additional observations that directly entail conceptual blending. The first is that in the initial stage, different goods compete, and there is not yet an anchor for stabilising expectations. In other words, the subsequent expediency of money cannot drive its emergence, so the functionalist fallacy must be Menger’s account avoided (Elster 1979: 28ff.). Therefore, involves conceptual two additional forces come into play: blending in habit the formation of habits and the observa- formation and tion of others. Imitation will especially imitation. drive demand for one particular good, all others being equal, thus enacting the mechanisms of social network markets that we considered in Part 1. The final step in the emergence of money is the explicit recognition that a certain good serves as money. Only after this had happened did it become possible to institutionalise money in an explicit way. In order to understand the three steps of habit formation, imitation and institutionalisation, we need to add an aspect that is neglected by Menger. This is the problem of trust among individuals who might cheat about unobservable qualities of the goods used for indirect exchange. This adds a social network dynamics to the process. We can distinguish the following steps, as depicted in Figure 8. Menger identifies the first stage as habit-formation. This involves transforming particular individuals into positions of trust in a trading community. A social learning process is triggered, based on observation: in an initial transaction,

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information is generated that diffuses to observers, hence qualifying as information externality in the underlying network. As a result, the emerging money commodity and the trusted individual merge in their role as mediators, that is, the good and the individual mutually reinforce their trustworthiness and resaleability. In Figure 8, this relates to the transference of trust in A from individual B to C. Viewed from the cognitive requirements, we can classify this as a simple inductive reasoning; past experience is extrapolated into the future.

Figure 8. Cognitive processes underlying the emergence of money

The second step is imitation. In this case, individuals who strive to obtain status in a group of traders will tend to imitate the example of the successful trader, driven by the expectations of potential trading partners that extrapolate the role of A. This is an analogy based on elementary principles of conceptual blending; a trader A’ blends with

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the role of trader A in the perception of trader C, thus generating an incipient process of conceptual formation of the notion of a good for exchange, that is, early money. Once A’ starts to interact in this way, the inductive chain is started anew, which involves other individuals such as D. In both cases, once the mechanisms have emerged, a commitment mechanism begins to hold that can be analysed according to the conventional game-theoretic ideas about reputation and so forth, that is, there are growing incentives for traders A and A’ to keep to their promises. The final step happens if both the role of the traders and that of the good are put on an abstract level. This is a much more complex conceptual blend, because it means that the role of trust is transformed into institutional trust and the role of the good is transformed into a generalised medium of exchange, which applies independently of any particular context of specific exchanges. Add externalism: blending the artefacts of money Interestingly, the interaction between cognition and institutionalisation can be clearly identified in historical sources reflecting the early emergence of money. To summarise a complex story, as has been demonstrated by Hutter (1994), the historical emergence of money in the Eastern Mediterranean went hand in hand with a semantic oscillation between ‘metal sign’ and ‘signed metal’, especially at In the early history of the boundaries between different social money, signed metals and political systems. Metals emerged were blended into metal signs. as a medium of exchange for the reasons that Menger had identified. However, at those boundaries, ordinary network relations maintaining relations of trust were

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much weaker. Early coins were just pieces of metal that bore punchmarks resulting from physical testing of quality. These marks could serve to identify the origin, so that a semantic ambiguity emerged. The question of origin was important to form an expectation about the quality of the metal pieces. This turned the pieces into a medium of exchange in original trading communities, and their use could spread at the moment when the pieces were deliberately coined, that is, additionally stamped with images of sacred animals, which allowed recognition beyond community borders. From that time onwards, the early history of money was inextricably linked with the merger of the value-carrying functions of money and the imbued authority of the political powers who later even defined and exploited the right to issue money. This marks the transition to the final stage of abstraction. The emergence of money was embedded in political and religious power structures. Historically, the use of money as a transaction tool was secondary to the use of balancing mutual claims in asymmetric power relations (Chavas & Bromley 2008). As Hutter showed, the two interpretations of coins corresponded to two different kinds of metal, The blend crosses two of which gold was seen as a symbol of different cultural contexts in which gold wealth in the Assyrian empire, and sil- and silver were used in ver was used as an occasional medium different contexts. The of transactions among Ionian peasant conceptual blend of communities. The first coins, originating money in the generic space of balanced from Lydia, were made of electrum, a reciprocity builds on natural alloy of gold and silver that could the physical properties be interpreted as both, hence offering a of the alloy used in semantic ambiguity in the different early coins. contexts of each society. When coins were used in interregional

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trade, they were objects of a conceptual blend that relied on a ‘brute fact’, namely the punchmarks and the alloy. The two functionings, gold as an indicator of wealth and power, and silver as a medium of exchange, could be projected into a generic space, as shown in Figure 9.

Figure 9. Conceptual blending in early money

This generic space is constituted by the notion of balanced reciprocity. In asymmetric power relations, this relates to Tuomela’s (1995) notion of collective intentionality, in which the religious and ritual functions of power-holders are balanced by the flow of services and contributions that come from their inferiors. In market exchange, this is seen as an equivalence of perceived values. Both views can be synthesised in the notion of balanced reciprocity. In Figure 9, I add the structure of Searle’s ‘status function’, showing that the notion of the generic space corresponds to the context

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in which the transfer of meanings takes place. Thus, we can see how money as an institution is emerging as an observer-relative fact in different cultural settings, which are hybridised in the very use of the artefact. Neuromemetic foundations of the use of money We can further strengthen this account by reference to the neuroeconomic observation that money is a direct reinforcer, that is, it may carry independent utility in the economist’s sense, directly contradicting established no- From the naturalistic tions of economics (Camerer et al. 2005: viewpoint, the 35f.). In modern economics, money is evolution of money involves neuronal regarded as a veil, having no indepen- processes that turn dent utility. In contrast, the naturalistic money into a direct approach to institutions, following reinforcer. Searle, shows how the institutionalised use of money is rooted in neurophysiologically embedded dispositions. As has been elucidated in Lea and Webley’s (2005) survey of the pertinent literature in contemporary social systems, money comes close to the status of a ‘drug’ in the biosocial sense. More exactly, they identify money as a ‘perceptual drug’, that is, a perceptual stimulus that elicits some positive organismic responses without producing the ultimate benefits; comparable to other runaway signalling systems in nature. For example, gaming can work as a drug, insofar as it activates human motivators such as curiosity, without the action directly contributing to fitness. A drug parasitises on other motivational systems, which is a clear sign of neuromemetic activity, that is, a neuromeme hijacking a genetically preformed organismic mechanism via new mappings and circuits. As money can be shown to be a direct motivator in

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stimulating parts of the brain that are related to immediate rewards, this seems to be the main reason why money plays a very special and central role in many human societies. Lea and Webley propose that money piggybacks on an essentially human instinct, the instinct to trade. This is also the basis for merging the tool and drug aspects in existing uses of money. As Ofek (2001) has argued, trade and social exchange in general are constitutive traits of the human species, and presumably developed out of the specific setting of utilising so-called contrived commodities collectively. This refers to the collective consumption of large game, or the sharing of fire, or child-rearing, which have the common property of being excludable, but at the same time being Money involves a non-rivalrous (e.g. large game could specifically human not be stored, so additional consum- emotional complex ers did not reduce the consumption of that generates the capability for social the successful hunter, assuming that to exchange. have been an individual). Trading goes back to reciprocal altruism, which emerged out of a system of ongoing exchange with possible punishments. This seems to be one possible adaptationist explanation for the fact that the cognitive system of humans is not guided by a general purpose rationality even in the case of exchange relations, but by special decision modules that focus on the detection of cheating and the maintenance and control of implicit social contracts (Cosmides & Tooby 2005). These decision modules can be shown to match activation patterns in the brain that correspond to the ‘theory of mind’ pattern (Ermer et al. 2006). These arguments can be related to historical observation. Interestingly for present purposes, the transition to modern money in the context of emerging large-scale market systems

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was accompanied by the demonisation of money. It was at this stage that money qualified as a neuromemetic trigger: particular monies in particular societies operated as a sign that instigated particular neuronal responses. Money appeared to be related to specific emotional complexes that connected to a broader semantic field of the ‘cardinal sins’. This is why the transition to capitalism was more easily achieved in societies with a specific religious setting, because the emotional coding of money was different for them. From that perspective, Max Weber’s famous hypothesis of the Protestant origins of capitalism can be directly interpreted in our framework, as he argued that Calvinism produced particular emotional structures, such as inner-worldly asceticism, which governed the handling of money and wealth. The accumulation of money obtained the role of an indicator of religious rightness in Calvinist settings, whereas in Catholic Spain the demonisation of The interaction money prevailed for a longer period. between cognitive Interestingly, the same demonisation blends and emotional patterns is visible in was observed in China during the Song the historic shift from dynasty, replicating the European views the demonisation that the diffusion of money signified the of money to its transition from the moral economy to a functional role in modern capitalism. new way of life, full of uncertainties and This involved the new dependencies on anonymous pow- emergence of new ers. Thus, we can say that the evolution identities, such as the of money, as in the example of forex investor. futures in Chapter 7, reflects a vacillation between different conceptual blends, some inhibiting, some promoting the emergence of more complex monetary economies. Finally, this blending was directly related to forming identities, partly involving ethnic identities, and partly the

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emergence of new types of personalities such as ‘the investor’ in the transition to modern capitalism (Preda 2005). The investor is a complex social identity, which was perceived in a net of metaphors related to risk, gambling and calculation, out of which eventually the rational investor became a central figure in emerging global financial markets. This close interrelation between finance and identities continues to the present day, especially in the role of the traders in institutionalised financial markets. These traders, far beyond the economic view on rationality, manifest a social and personal identity that is deeply embedded in the behavioural standards governing the trading community, and in the evolving emotional structure that underlies their individual satisfaction about dealing in risk and uncertainty (Zaloom 2004; Hassoun 2005). As we have seen, identities also come into play in contexts where, at first sight, money is only involved indirectly, because ‘real’ magnitudes seem to be more significant. In fact, money illusion demonstrates that the institution of money originates in a reality that involves neurophysiologically rooted dispositions (Shafir et al. 1997; Weber et al. 2009). The market as an artefact Summarising, we end up with a naturalistic view of the institution of money, which emphasises the following points: • Money emerges out of a process of social exchange via a conceptual blending that involves physical properties of goods and transfers meanings in the sense of Searle’s status function, once the cognitive transformation into a medium of exchange has taken place.

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• This conceptual blend is embedded in a collective

intentionality that thematises relations of authority and sanctity in a community of users of money, thus imbuing the institution of money with sanctioning power. • Money as an artefact is directly related to neuromemetic structures that link with reward mechanisms in the brain, activating emotions that are related to social exchange, thus providing an independent incentive to use and accumulate money. • In the longer run, money is related to the emergence of social identities, which hook up to personal identities of individuals who deal with money in a specialised fashion, such as professional traders. This is an essential part of the emergence of global capitalism as a distinct social structure. This picture reveals that one of the central institutions of modern capitalism is an artefact that relates to neuromemetic structures. Only this externalist argument can explain why money is a ‘hard’ social fact, even though, from the viewpoint of pure economic theory, it would seem to be entirely dependent on the subjective beliefs in the value of money. Purely mentalist accounts of money as an institution cannot explain why money is a stable institution at all. We can extend this argument into the general proposition that the market in modern societies is a system of artefacts coupled with neuromemetic structures. Market societies are systems of distributed cognition that emerged out of the process of institutional creativity coupled with technological

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evolution. In current research the workhorse for this view is the financial markets, as we have seen already (for a survey, see Preda 2008). But these insights ap- Markets are systems ply to markets in general. For example, of artefacts coupled another institution of markets, prices, with neuromemetic structures. can be seen in an entirely different light from this perspective. A price is an artefact that is constructed via complex processes involving internal and external cognitive mechanisms, ending with physical representations of prices, such as price labels in the supermarket (for exemplary studies, see Beunza et al. 2006; Caliskan 2007). Only this naturalistic approach to prices can convert the classic Hayekian view, later turned mainstream, into an empirically meaningful statement; namely, that prices are information processors in the economy that enable the coordination of decentralised decisions of market agents. As long as this hypothesis is interpreted in purely mentalist terms, the Prices are things, and central notions of equilibrium run into only by recognising serious conceptual troubles, such as in this can economics the famous ‘no trade theorem’ for fi- avoid the paradoxes of purely mentalist nancial markets, which states that offers equilibrium theories. based on observed prices will not meet any demand because this action itself reveals that there must be private information that would not be included in the price signal (Samuelson 2004). In other words, markets can only be understood properly if they are seen as the results of ongoing processes of institutional creativity as outlined in this chapter. This implies that markets are evolutionary systems, in which institutions and identities coevolve. From this it follows, in turn, that research into markets and their societies is the object of the work of

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the economist-turned-naturalist. So the theory of institutional creativity provides a systematic rationale for the position that I developed in Chapter 1. The distinction between standard economics and cultural science is the question of the separation between the individual and their environment. This fits into those traditions of scholarly debate where protagonists of a cultural viewpoint reject the hypothesis of methodological individu- Cultural science rejects alism. Cultural science radicalises these the fiction of the criticisms in the sense that it adopts autonomous individual in economics. a wholesale externalist point of view in which the individual appears to be an emergent property at complex interfaces of evolutionary processes on different levels, such as the evolution of neuronal structures in the brain or the evolution of technological artefacts. From the viewpoint of cultural science, there is no such thing as an autonomous individual, unless they emerge from evolutionary processes as an endogenous social construction. This latter proposition can reconcile economics and cultural science, because cultural science maintains that there is a domain-specific validity of certain economic assumptions about the individual, insofar as economic systems as artefacts are also external determinants of individual phenomena. Institutional creativity in the Creative Economy This rejection of the autonomous individual has many consequences for economic analysis. One of the most obvious ones in relation to the Creative Economy is the understanding of creativity as a process property and not as an individual activity. Standard economics sees the roots of creativity in

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the individual, which entails an exclusive emphasis on the incentives and motivations for creative acts in the normative and positive analysis of the institutional framework for creativity. Thus, standard economics always em- Correspondingly, phasises the pivotal role of intellectual creativity is seen as property rights. This does not match a collective property with the cultural science framework, in of an evolutionary process, but not as which creativity is seen as a property a kind of individual of evolving networks of individuals and action. This has direct related artefacts. In simple terms, cre- consequences for the ativity is a collective phenomenon, and established theory of intellectual property. it involves the role of things as mediators of human action, as they are external forms of knowledge. For example, when Watt struggled to preserve his patent rights on the steam engine, he effectively blocked a collective effort to improve the steam engine in an evolutionary process of tinkering and experimenting by others, such that there were serious impediments for activating distributed knowledge in the networks of individuals and engines (Boldrin & Levine 2008). The same is happening right now in social network media such as the internet, where individual property rights are being ever more aggressively asserted, against the proposition that ‘knowledge shared is knowledge gained’. As cultural science extends the notion of creativity to the analysis of institutions, this role of intellectual property rights in contemporary economies can be explained as going back to creative acts for their own sake. Evidently, it is of utmost importance to understand the role of conceptual blends in creating institutions, because, for practical purposes, this allows for critical reflections of metaphors. When

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economists strongly recommend intel- By stating a particular lectual property rights, they contribute theory of intellectual to the performance of a particular kind property rights, of economy, rather than simply describ- economists perform a particular kind of ing functional necessities that seem to economy. leave no other choices. The institution of intellectual property rights is based on a conceptual blend that equates knowledge with other goods over which possession can be claimed in principle, and it presupposes corresponding properties such as the clear identification in space and time. This blend does not simply describe knowledge in terms of certain institutional possibilities, but it creates a particular kind of knowledge. This is also true for the underlying scientific models that seem to support a particular institutional feature by means of theories that are independent of historical and geographical contexts (Boldrin & Levine 2009). As economists informed by cultural science, we can question this blend based on our naturalistic understanding of knowledge, and we can propose other metaphors. Thus, the growing criticism of intellectual property rights in the context of the creative industries is nothing but a field experiment in institutional creativity. If cultural science posits that creativity is a collective proCultural science can cess, this has profound implications contribute reflectively for the inherited distinction between to the performance of consumption and production. Con- new kinds of economic sumption patterns are also driven by institutions, thus becoming part and conceptual blendings, and creativity parcel of the process involves users and consumers of prod- of institutional ucts as well as inventors and produc- creativity. ers. Current discussions about ‘produsage’ (Bruns 2008) and other processes in the Creative Economy reflect

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this point. Thus, in the end, cultural science turns reflective, in a similar way that finance theory acted performatively when modern financial markets were created four decades ago. The ongoing emergence of new forms of intellectual property is part of a process of institutional creativity that will ultimately also change the nature of the economic system. This raises the question of whether the Creative Economy is related to the emergence of a new kind of economic agent. This is a familiar topic from economic anthropology, where other transitions in economic systems have also been analysed in terms of changing identities of agents, such as in the classical debate about the moral character of the peasant economy, which was challenged by the universalist claims of economic rationality. Agent identity is an essential conceptual difference between the cultural science approach and standard economics. All economic actions are seen as expressions of agent identity, and as actions maintaining and changing agent identity. Agent identity is a determining force of the emerging patterns of social interaction. In cultural science, From the viewpoint economic analysis cannot be based on of cultural science, the notion of a universal, rational agent. different economic Against the background of externalism, systems involve different agent this includes a different approach to identities. consumption, because agent identity is seen as externalised in consumption patterns, as consumptive goods are mediators in networks of economic action. In this light, the changing roles of citizen-consumers in the advancing digital age should be seen as involving (and evolving) new possibilities for forming identities (Hartley 2009). Clearly, this includes creating new kinds of artefacts, such as in the media

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industry and in journalism. These artefacts involve new cognitive and emotional settings, changing the roles of producers and consumers of those goods.

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ACKNOWLEDGEMENTS This book is a wonderful example of one of its major claims, namely, that knowledge never resides in individuals, but is always distributed across evolving networks of people and things. The book grew out of another manuscript that I am labouring on, Foundations of Evolutionary Economics (draft chapters are accessible on my SSRN page: ). When I met my colleagues from Queensland University of Technology for the first time in March 2008, this meeting caused a major redirection of my thoughts, although no change in the core assumptions. I suddenly perceived new linkages and, so to speak, new conceptual blends – while reading their papers and listening to their thoughts – embodied in the languages of researchers from many different disciplines. Without them, this book would not have come into existence. It was also fascinating to me to observe how physical mechanisms operate on thought, thus again revealing some ways how distributed knowledge works. I am extremely grateful to John Hartley, who, among other important things, taught me how to write a short book (most of my previous books number several hundreds of pages). It is the technology of how we cast thought into symbols that also impinges on our way of thinking. For example, John’s proposal to divide a somewhat messy manuscript into shorter chapters also produced new insights about the structure of the entire theory. It was a great gift that a scholar of John’s stature took the pains to work through the entire manuscript. I also wish to thank Michael Grinfeld, who invited me to contribute to the Institute of Advanced Studies workshop

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series at Glasgow, on ‘Limits of Rationality in Economics and Financial Markets’, just when I was working on the revision of this book. It was a wonderful opportunity to put my ideas under a stress test. While looking at the result of the work, I also wonder what the implications are for my identity as a researcher. The flow of thoughts expresses and changes that identity. As a rare species, that is, a crossover of an economist and a sinologist, I always found myself in an awkward position between the sciences and the humanities. At the same time, I felt that the two sides have their own advantages and flaws. The humanities are lacking the rigidity and testability of propositions, which is a major achievement of economics pursuing the ideals of science. Economics is suffering from the inability to theorise about context and meaning, which is still the hallmark of serious work in the humanities. This book is an attempt at resolving this perennial conflict by proposing what is an idea appropriated from the QUT group, namely, the possibility of a science of culture: ‘cultural science’.

INDEX actor-network theory see ANT adaptation 19, 103-6, 162-3 agency 50 creative 74 and culture 78-9 endogenous vs exogenous 50—1 and externalisation 160 institutional 193-4 and signal selection 83 agent identity 10,48, 198, 214-15 Akerlof and Kranton model 178—81, 181-6 Akerlof, George 188 algorithmic incompressibility 147-8 altruism 206 ANT 49-50, 61, 95, 121, 163,

body 150 see also individuality; phenotype brain—brain interconnections 71, 156 see also extended brain

Campbell, Donald 140 capitalism 207—8 Cartesianism 11, 20-3,41, 108 cheating 173, 206 Chinese room 109-10 see also artificial intelligence; semantics; syntax coevolution 5, 65, 82, 162-3, 167 cognition 64, 109-10 distributed 51, 209 and externalism 156 and institutionalisation 202 194-5 and money 198-202,201 anthropic principle 134 shared 193-4 Aristotelian philosophy 146—8, 181 cognitive sciences 112—13 Arrow, Kenneth 38 atomism vs holism 34 see also Condorcet-Arrow and economics 24 theorem externalism in 40 artefacts 2, 4, 7, 70-1, 187 Gestalt principles and creativity as aspects of knowledge 34 121-2 as catalysts for neuromeme and language 24 reproduction 68-9, 69, 167 Coleman, James 158-9 economic 48 see also principal-agent model; as mediators see mediator self and neuronal mapping 134 role in brain—brain interactions communication 29, 48, 61, 76, 97-8, 133-4, 156, 178 71, 135 conceptual blending 112-13, technological 7, 138 119-21,120,134 artificial intelligence 109, 130 and institutions 195-6 atomism 32, 34, 52-5, 59 and money 200, 202 audience 97—8 and neuromeme formation 135 Aunger, Robert 62—3 and risk 129 Ayres, Clarence 2 and technology 139 ‘baptizing event’ 113, 114-15, 118, Condorcet-Arrow theorem 155, 176 consciousness 154-5, 167-8 147, 153 consumption 10, 78 Bateson, Gregory 44 as creative act 162 Becker, Gary 164 and identity 186-7, 189-90 behaviourism 23-4 counterfactual 122-3 bimodality 11,40-2, 52, 126

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Creative Economy 16, 25-6, 27-8, 30,73,74,85,86,211-15 see also creative industries; creativity, institutions creative industries 8-10, 25, 27, 29, 73-4,78,84-5,86, 117 creativity 2, 4, 5, 8-9, 11-18, 21-3, 28, 32, 35, 59-60, 78, 89, 109 in business 99 as a cultural phenomenon 93 and cultural science 4, 13, 212-13 and identity 90-1, 93, 94-5, 106-7, 111-12, 152 and institutions 10, 31, 137, 191, 196-7, 210-15 and language 113-15, 117, 118, 121-3, 126, 136-8,141-3 and problem solving 92-3 and syntax 110 cultural evolution 2, 6, 87 creativity and 90 materialism 79—80 see also Creative Economy; creative industries; signal selection cultural production 9—10 see also consumption cultural science 1—8, 11, 45—6, 47, 51,74-5, 192 in contrast to cultural studies 3-8, 74-5 and creativity 212—13 as the naturalisation of knowledge and culture 86 see also cultural studies cultural studies 3-8, 74-5, 96 see also cultural science culture 5, 6, 7, 8, 20-1, 35, 39, 52-5, 57-8,60,61,64,71-2,75,82, 86, 87-8, 90-1 and consumption 78-80, 163, 172 and genes 63, 65, 156 and individual knowledge 46

Darwin, Charles 8, 42, 149 see also Darwinism Darwinism 5, 18-19, 53-8 and culture 58,60,71 Darwinian revolution 7, 41 holistic view of 72, 86-7 naturalised blending 130 neural 154-5 novel variants and blindness 37 process of neuronal selection 64 and signal selection 75, 80, 81-4 and technological change 139-42 and VSR principle 102 see also conceptual blending; externalism; holism; naturalism; population genetics; population thinking; signal selection; VSR principle Dawkins, Richard 61-2, 150, 157 ‘definite descriptions’ 114 Dennett, Daniel 8, 20, 70, 82-3, 106, 155 Descartes, Rene 6 see also Cartesianism development 5, 57-8, 104, 105, 106, 131,135, 152-3, 173,189 and identity 107, 146, 148, 183 technological 35 downward causation 55, 57—8, 70, 86, 88, 167 drug (perceptual) 205—6 economic systems 88-9 and identity 186-90 see also creative industries; intellectual property rights; networks Edelman, Gerald 130-1 see also neuronal selection theory emergence 21, 45, 82, 84-5, 89, 93,’ 102, 103-8, 132, 153, 194-5 emergent property 65, 72, 105, 211 and cultural meaning 8 and identity 153-4

Index emergent property (cont.) of knowledge 34, 47 of language 22 emotions 131, 155, 159, 172, 183 and lying 175 and money 209 see also evolutionary psychology; identity epistemology see knowledge essentialism 149-50 evolution 5, 21, 44, 53-4, 73-6, 78, 81, 104-8, 105, 133-4, 196 biological 8, 105, 131, 136, 1502,163,167,211 cultural 2, 5, 8, 30,46, 57, 71, 85, 87, 89, 90, 163, 167 knowledge 37-41,46, 56-8, 80, 88, 142-3 and language 112-17, 118, 172-3 of money 198-9, 205, 207 neuromemetic 65—71, 74, 75, 116 technological 35-6, 139-42, 211 see also Darwinism evolutionary economics 6, 16 evolutionary psychology 135, 142, 172 extended brain 133, 157-9 see also brain—brain interconnections extended mind 41, 46 externalism 6, 11, 40,42-4, 45, 88 and agency 158 and the brain 133, 156 and conceptual blending 126 and creativity 142 and form 100-1 and identity 166-7, 186-90 and institutions 197—8 facts, observer relative 194—8 see also institutions finance theory 12, 124, 208, 214 financial markets 124—5 and prices 210 see also forex futures

245 food 78-80, 186-7 see also consumption foreign exchange futures see forex futures forex futures 7, 124, 196 conceptual blending in 124—6, 125 see also financial markets form 97-9 and adaptationism 103-5 and individualisation 154 and VSR principle 99-100 see also organisational ecology; rule Frank, Robert 161, 172 game theory 24, 170-1 and identity 172, 175, 176, 178 gender 75 and sex 181 genetic reductionism 150 see also Dawkins, Richard; genotype; phenotype genotype 150-1, 166 and identity 152-4 evolvability 107 see also genetic reductionism; immune system; phenotype; population genetics; selection group selection 82-4 handicap principle 82-4 happiness 161—2, 168 Hayek, Friedrich August von 46, 130 heterogeneity 17, 57 holism and identity 93 vs atomism 32, 34, 52-5 hypercycle 67—9, 67 and brain—brain interconnection 79 and neuromemetic reproduction 68-70, 69 and neuronal mapping 128

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The Economics of Identity and Creativity

identity 2-3, 12, 47-8, 144-6, 170-1

in economic theory 192—4 and adaptationism 103-4 and identity 191-2 agent see agent identity intellectual property rights 212-13 and control in complex intentionality see agency networks 164-5 and creativity 90-1, 93, 94-5 Keynesian economics 188 KK-thesis 43 economics of 178-81 and evolutionary dynamics 103 knowledge 5-6, 9, 15, 23,42 atomistic and holistic approaches as externalist phenomenon 32-4 166-7, 186-90 Darwinising of 34, 80 and form 98, 100-1 economic role 29 and gender 181 evolution of 37-41, 46, 56-8, 80, and genes 151-4 88, 142-3 and individuality 142, 147-8 externalist approach to 43 and language 173-4, 178, 184-6 generation and diffusion of and money 207—8 29-30 organisational 97—8 and institutions 197—8 shared 176—8 and phenotypic plasticity 160 social vs personal 181-6 referential vs non-referential 42, see also Akerlof and Kranton 108-9, 114 model tacit 9, 33 imitation 64—5, 75 theory of 88 and creative industries 86 Kripke, Saul 113-14, 115, 119 and money 200-1 see also hypercycle; neuromeme language 5-6, 11, 22-5, 109-12, 160 immune system 152-4 and agency 163 inclusive fitness 150 as artefact 70, 157 individual—artefact and culture 88 interactions 7, 93, and economics 23, 136—7 109-10 exchange 138 individuality 142, 146-9 and identity 173-4, 184-6 and creativity 211 and institutions 195 and economics 149 method of analysis 108 evolutionary properties of 153, naturalistic-externalist theory of 165, 166-8 71,137 and reality 146 and neuromemetic evolution 116 see also identity; name; see also meaning; semantics; phenotype; population syntax; Wittgenstein, genetics Ludwig; word individuum est ineffahile 146—9 see also Aristotelian philosophy Leibniz, Gottfried Wilhelm 145-6 levels of selection 83 innovation 29, 35-6, 93-4 see also group selection institutions 9, 191, 195 loss aversion 129, 164, 165, 190 as artefacts 191-2 as aspects of knowledge 34, 197-8 and creativity 196-7, 210

Index

247

markets 2, 7,9, 10, 26, 28,46,48, 85, neuroeconomics 23, 129 89,96,99,105,126,188,204,206 neuromeme 63-9, 132 as artefacts 208-11 dynamics 94 meaning and function in 3 8—9, 95 see also financial markets; social network markets matter-energy structure 5, 21, 40-1,

44, 52, 100, 103, 136 meaning 22, 58-60, 80, 111-15

and function, divergence between 81-2 and identity 111 and shared intentionality 60 see also Kripke, Saul; Wittgenstein, Ludwig mediator 49-50, 61,96 memetics 61-3 see also Dawkins, Richard; neuromeme Menger, Carl 199 mental content 45 mentalism 6, 51 see also atomism; Cartesianism metaphor 119, 126-7, 195, 212-13 neural theory of 127 mind, theory of 46, 206 modern synthesis 5—6, 19, 53—4, 56 see also Darwinism money 198-209 name 112, 113-15,147 see also Kripke, Saul

naturalism 4-6, 19-22, 29-31, 62, 88 the economist as naturalist 25 see also Darwinism; externalism

networks 2,6, 164, 212

and conceptual blending 119 and consumption 76 and identity 178-81 and signal selection 77, 82-3 see also Akerlof and Kranton model; social network markets

and conceptual blending 135 consumption and 78-9 and identity 166—7 and money 207-8, 209 and names 116 see also artefacts; Aunger, Robert; hypercycle; imitation; memetics; neuronal selection theory neuronal dynamics mapping 128—32 see also neuromeme neuronal selection theory 64, 130-3 see also Edelman, Gerald; neuromeme; neuronal dynamics; selection neutral variations 107, 132, 135, 136 North, Douglass 39 novelty 2, 14, 16-18,55,56 and conceptual blending 119 and identity 93 and language 110—12 and radical uncertainty 14, 37 technological innovation 32 see also conceptual blending; VSR principle ontological continuity hypothesis 20-2 ontological creativity 12, 59-60 and conceptual blending 123, 126, 142 and empiricism—rationalism juxtaposition 116—17 and institutions 196-7 and language 115, 136-7 see also creativity; novelty organisational ecology 96—9 and form 102

performativity 123-6, 196, 214 phenotype 63, 150-1 accessibility 107

extended 157, 166, 167

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The Economics of Identity and Creativity

phenotype (cont.) plasticity 159-60, 162 see also externalism; genotype; language; population genetics; selection; VSR principle play 135, 160-1 Popper, Karl 1, 10 ‘three worlds’ concept 21 population genetics 104—6 random variation vs identity 142 see also adaptationism population thinking 149, 150 see also individuality; randomness principal—agent model 158 prisoner’s dilemma 169—71 see also game theory private language argument 83, 133, 138, 196 see also Wittgenstein, Ludwig product 26, 76 as mediator 96 signal selection and 77

neuronal see neuronal selection theory self 152 ‘acting-self and ‘object-self 158-78 see also extended brain; Coleman, James semantics 59,61, 109, 111 teleosemantics 58, 152 see also conceptual blending; language; meaning; syntax shared intentionality 60 signal selection 74-6, 77, 80-5 consumption and 78-9 and creative industries 86 and identity 173 and market process 96 and money 202 and technology 139 see also meaning; social network markets Simon, Herbert 24 social network markets 76—8 and creative industries 86 see also creative industries; signal randomness 104 selection and individuality 143, 148 species 19, 55, 101-3 variation 104-5, 116, 142 and individual identity 149, 153 rationality 6-7, 20-1,47, 177-8, status 161-2 188-9, 206 and imitation 201 risk 128-30 status function 195-6, 204, 208 rule 101-2, 105, 108-10, 114, 176-7 see also conceptual blending; 188 Searle, John and agent identity 198 syntax 109-11 and institutions 198 see also language; meaning; and language 195 semantics see also Chinese room; form Russell, Bertrand 147 taxonomic approach 18, 102-4 team preferences 176 technology 32, 35-9 Searle, John 109-10, 194 compared to language 139—42 see also Chinese room; status trade 206, 210 function Tuomela, Raimo 176-7, 193 second-order punishment 180 notion of collective intentionality selection 103—6 193, 204 internal vs external 105, 105—6 see also agency; team preferences

Index uncertainty 14, 80, 84 and food 79-80 and individuality 172 and institutions 197 Keynesian 16, 188 and knowledge 37—40 in risk 129 in trade 208 utility 74, 76, 96, 158-62 and creativity 2 function 21—4 and money 137 and novelty 14, 37 and signal selection 82 variation, selection and retention principle see VSR principle Veblen, Thorstein 2, 161 VSR (variation, selection and retention) principle 56-7, 71, 99-101, 105, 105-6, 140

249 and conceptual blending 130, 141 and identity 167 see also adaptationism; Darwinism; selection Weber, Max 207 Witt, Ulrich 20 Wittgenstein, Ludwig 59 theory of meaning 59, 60, 108, 115-16 see also externalism; language; meaning; private language argument word 136-9 see also language; matter-energy structure; meaning; ontological creativity

Economics Business Psychology

THE ECONOMICS OF IDENTITY AND CREATIVITY A Cultural Science Approach Creative Economy and Innovation Culture Series Carsten Herrmann-Pillath The Economics of Identity and Creativity aims to sythesize naturalistic evolutionary theory while discussing new developments in economics. The author’s approach reexamines fundamental assumptions about how a capitalist economy works, from the relation between producers and consumers to the functioning of intellectual property rights. In the creative economy, the author argues, identities merge with the flow of creative action. To explain these changes, he draws upon a range of theories from analytical philosophy to biology, and from economics to sociology. The first part of the book examines the role of language in the naturalistic approach to cultural science. Herrmann-Pillath draws on Darwinian evolutionary theory to map a concept of knowledge. Part Two offers a systematic approach to creativity and identity from the naturalistic point of view developed in Part One. Here the author builds a theory of creativity from the ideas of conceptual blending in the cognitive sciences. Herrmann-Pillath presents a theory of identity based on analytical philosophy, and looks at the problems in fixing the boundaries of an individual identity both in biological evolutionary theory and brain sciences. He takes the concept of identity through the current economic approaches, examining the distinction between social and personal identity. This fascinating interdisciplinary work provides a precise argument that the foundations of economics can be found in cultural science, and it has evolved to become the cultural institution at the core of the modern economy. About the Author Carsten Herrmann-Pillath is academic director at the East-West Centre for Business Studies and Cultural Science, and professor of business economics at the Frankfurt School of Finance and Management. He is the author of numerous works, mostly in German, and his research interests include evolutionary economics, international trade, economic transition, and economic methodology.

Library of Congress: 2010047969 Printed in the U.S.A. Cover design by Ellen F. Kane www.transactionpub.com

ISBN: 978-1-4128-1101-9