Evolutionary theory of division of labor: towards a more complete general equilibrium analytical framework of division of labor

The justification of the notion of invisible hand entails the modeling of market coordination mechanisms to spell out how dispersed individuals act and interact in the market to finalize a resource allocation that is optimal in some sense. Walras (1900) for the first time provided such a formulation, in which the market coordination was modeled as an informationally decentralized communication process between a fictitious auctioneer and economic agents. This approach to modeling market coordination mechanisms has been widely applied to economic analyses, becoming the mainstream tradition of constructing general equilibrium models. For example, neoclassical economists have applied it to the analysis of resource allocation in environments with given networks of division of labor. Recently, the new classical economists, represented by Yang and Ng (1993), Sun, Yang and Yao (2004), Sun, Yang and Zhou (2004), etc., have also applied it to the analysis of individuals' decisions on labor specialization and the detemination of division of labor in human societies. The present thesis shows, while the Walrasian tradition is technically acceptable in the neoclassical models, it is less acceptable in the new classical model as the model is incomplete in the sense that the stability of the equilibrium can, analytically, be neither verified nor falsified. The thesis shows that the cause of this issue, brought up in the new classical model, is the non-single-valuedness of the aggregate excess demand function. To overcome this problem, the thesis proposes to abandon the Walrasian tradition and formalize the market coordination mechanism as an evolutionary game process in which individuals test and seek their fittest roles in the social network of division of labor through repeating real actions such as production and trading. These real actions are trials and errors through which people can obtain necessary information for them to revise their strategies so that the society can eventually reach the optimal state of resource allocation. It is shown in a simple model that such a dynamic process, when satisfying certain properties, can coordinate dispersed individuals' decisions with regards to labor specialization. This ensures an efficient network of division of labor and the required properties can be easily realized when individuals in the economy revise their strategies according to some ordinary rules. These analyses result in an evolutionary theory of division of labor. The thesis further applies the evolutionary theory of division of labor to a puzzle of economic history: the bifurcation in growth between China and Western Europe. The economic growth model proposed in this thesis shows that the separation of scientific research from material production, which resulted in the appearance of professionalized scientists in human societies, has significant impact on knowledge creation and economic growth. As a result, knowledge accumulation and economic growth in a civilization can be influenced by the dynamic process of the separation of scientific research from other productive activities. The bifurcation in economic growth between different civilizations, such as the rise of Europe and the fall-behind of China, can thus be explained by the differences in exogenous factors, such as the natural and geographic environments, between civilizations, for different natural and geographic environments had fostered different evolutionary processes of division of labor.