The Origin of Wealth: Evolution, complexity, and the radical remaking of economics
The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Harvard Business School Press, 2006) describes how advances in fields ranging from evolutionary theory, to physics, biology, computer science, and cognitive science are fundamentally changing the way economists view the workings of the economy. For the past century, economists have viewed the economy as an equilibrium system made up of perfectly rational agents with access to full information, who produce and consume goods and services in economies with optimally efficient markets and institutions. This theory, known as neoclassical economics has dominated mainstream theory, particularly in the US and UK, since the late 19th century when it was developed by figures such as Leon Walras, William Stanley Jevons, and Vilfredo Pareto.
Beinhocker argues that neoclassical economics is fundamentally flawed, has a poor record of empirical validation, and that the strong assumptions the theory requires serve to make economics of less relevance to real world issues than the field otherwise might be. Beinhocker claims that neoclassical theory is in the process of being supplanted by what he calls complexity economics – the view that the economy is a complex adaptive system made up of realistically rational agents who dynamically interact with each other in an evolutionary system. Complexity economics is in turn built on foundations of a long-standing tradition of heterodox economics that includes areas such as behavioral economics, institutional economics, Austrian economics, and evolutionary economics.
In the Origin of Wealth, Eric Beinhocker offers a thorough and convincing new way to think about economic growth and business management. The author begins by exploring the roots of modern economic theory and ultimately declares it outmoded and wrong. Instead, he suggests, markets and growth can best be explained by drawing on the emerging field of complexity economics: the study of markets and social systems as complex adaptive systems. Although biological metaphors in business have become familiar (i.e., organisations are living organisms), Beinhocker moves beyond metaphor to explain the revolutions in science that will inevitably change the way we think about economics, competition, and business. The Origin of Wealth raises important questions such as: How can one create strategy in uncertain and fast moving environments? Why is it hard for large organisations to be innovative and how should we organise for better results? What role should governments play in this new era?