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Games, evolution and growth (20th century)

In 1898 Thorstein Veblen published Why is Economics not an Evolutionary Science, which coins the term Evolutionary economics, making use of anthropology to deny that there is a universal human nature, emphasizing the conflict between "industrial" or instrumental and "pecuniary" or ceremonial values, which became known as the Ceremonial/Instrumental Dichotomy.

Joseph Alois Schumpeter (1883–1950) was an Austrian School economist and political scientist best known for his works on business cycles and innovation. He insisted on the role of the entrepreneurs in an economy. In Business Cycles: A theoretical, historical and statistical analysis of the Capitalist process (1939), Schumpeter synthesized the theories about business cycles, suggesting that they could explain the economic situations. According to Schumpeter, capitalism necessarily goes through long-term cycles because it is entirely based upon scientific inventions and innovations. A phase of expansion is made possible by innovations, because they bring productivity gains and encourage entrepreneurs to invest. However, when investors have no more opportunities to invest, the economy goes into recession, several firms collapse, closures and bankruptcy occur. This phase lasts until new innovations bring a creative destruction process, i.e. they destroy old products, reduce the employment, but they allow the economy to start a new phase of growth, based upon new products and new factors of production.

In 1944 Hungarian-American mathematician John von Neumann and Oskar Morgenstern published Theory of Games and Economic Behavior, founding Game Theory, which was widely adopted by economists. In 1951 Princeton mathematician John Forbes Nash Jr. published the article Non-Cooperative Games, becoming the first to define a Nash Equilibrium for non-zero-sum games.

In 1956 American economist Robert Solow (1924–2023) and Australian economist Trevor Swan (1918–1989) proposed the Solow–Swan model, based on productivity, capital accumulation, population growth, and technological progress. In 1956 Swan also proposed the Swan diagram of the internal-external balance. In 1987 Solow was awarded the Nobel Economics Prize.