Darwinian Finance the Evolution of Essay

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Over time, these small changes add up to evolution.

In short, evolution can be seen as a measure of how suitable given traits of an individual are to the survival of their genetic material. Genes more suited to survival remain while those less do not. Chance events can cause changes in evolutionarily advantageous traits, and can also cause bottlenecks by severely limiting resources, meaning that only a small number of species with given genetic traits will survive to pass on their genes to the next generation. How this all applies to the current economic situation might not be immediately observable, but it is actually a relatively straightforward and even simple application.

There was not exactly a chance event that caused the financial crisis, but the failure of mortgage-backed securities was certainly unplanned, and its effects largely unpredictable. In essence, this failure caused a sever drop in the level of available capital (i.e. It limited resources), meaning that only the most financially strong companies could survive.
This is exactly what has happened, with the exception of the bailouts given by the government. This can be seen as a form of artificial selection where the specific trait selected for was simply the size of the institution (i.e. they were deemed "too big to fail"). Disregarding this artificiality, however, only the companies most suited to survival in the current economic situation will survive to the next generation.

If resources (i.e. capital) were not limited, companies would have no problem surviving. Of course, without limits on resources, there would be no need for companies at all, as everyone would have everything they needed. This is an impossible scenarios, however. Resources are always limited, meaning there will always be competition and evolution......

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