The Origin of Wealth: The Radical Remaking of Economics and What it Means for Business and Society

I can't recall having ever read an author with the clarity of exposition and the depth and breadth of erudition that is demonstrated by Dr. Beinhocker in this book. It is an impressive work.The opening sentence of the book asserts that "the field of economics is going through its most profound change in more than a hundred years." Since much of the book directly addresses and analyzes that change and its implications, I think the book could have more accurately been entitled The Evolution of Economic Theory.He notes "the two fundamental questions that economists have grappled with throughout the history of their field: how wealth is created and how wealth is allocated." Adam Smith in his The Wealth of Nations (published 1776) directly addressed both these questions and, with some elaboration by others, established the basic notions of the Classical Period of economic theory; most of these concepts are still accepted today.Adam Smith and his peers considered themselves philosophers, not scientists, and never attempted to reduce their ideas to mathematical expression. Roughly a century later Leon Walras wanted to change that, he wanted to make economics a science and to make quantitative economic predictions possible. So Walrus set about converting economic ideas into the language of mathematics. He devised a set of equations that represented the equilibrium of cleared markets. Production--how the stuff in the markets was created--was just assumed to have happened, and omitted from the representation. He made other simplifying assumptions. "Walrus's willingness to make trade-offs in realism for the sake of mathematical predictability would set a pattern followed by economists over the next century."Joseph Schumpeter, with his thinking undistorted by trying to produce numbers, brought forth an entirely different vision of how an economy functions, and emphasized the heretofore largely neglected production side of the economy. Schumpeter put entrepreneurship and technical change front and center as the primary source of productivity improvement and therefore wealth creation. He saw the economy as never in equilibrium, always in a state of dynamic change.Schumpeter's ideas were valid and persuasive, but his failure to put them into mathematics held them back from getting the affirmation they deserved. Most economists were still trying to describe economic phenomena in a mathematical language that was inadequate to the task, resulting in the need for simplifying but unrealistic assumptions. The three that stood out was, first, that people were always economically rational in their behavior, second, that the economic system was in equilibrium, and third, that innovation--both technical and behavioral (social) change--were not considered part of the system (considered to be exogenous variables).Robert Solow, a Harvard-trained professor at MIT, won the 1987 Nobel Prize by producing a model of a dynamic economy driven by technical change.[This whole history is a good illustration of "the rule of the tool": the idea when one possesses a tool there is a strong tendency to want to use it whether or not it is really appropriate to the task at hand. The result is often that the task is modified to fit the tool. It is often illustrated by the observation that when you give a small boy a hammer is just turns out that nearly everything needs bashing.The transistor was invented in the 1940's. This technological discovery made the digital computer possible, and by the latter part of the century had put an entirely new tool in the hands of analysts, largely removing much of the pressure to modify the task to fit the tool.]The digital computer opened the door to new powers of analysis, and lessened the need for simplifying assumptions made to allow any quantitative analysis at all. The computer is capable of simulating most phenomena, providing versatility to quantitative analysis heretofore not available using conventional mathematics. Complex systems--systems in which the macro behavior emerges from the interaction of the fundament agents--could be simulated and therefore studied. The economy is a prime example of a complex, adaptive system in which the fundamental agents are people and institutions that through their behavior and interaction produce the macro behavior of the total system. For the first time the goal of deriving macroeconomic behavior as an emergent property of microeconomic activity is in sight.Beinhocker discussed in depth the implications of these events, and provided substantially more color than this brief summary here. He discussed the properties of networks as they affect economic behavior, cognitive phenomena and the unreality of the rational man, and the dynamics of systems with feedback. He illuminated many of the ideas and implications of the economy as a complex system by describing actual computer simulations of various types. He notes that "Complexity Economics is still more of a research program than a single, synthesized theory . . ."These first two parts of the book focused on the evolution of economic theory. He also mixes in a kind of running tutorial on the terminology and often very surprising properties of complex systems. The third part addressed how evolution creates wealth. It begins with a description and illustration of the generic evolutionary process itself, including a fairly detailed presentation of the story of our biological evolution. He makes the point that the evolution of our economic system and creation of wealth are analogous processes. It seemed to me that while it is of some gee-whiz interest that the generalized patterns were the same, the specific mechanisms were so different that the fact of algorithmic or schematic similarity added very little real understanding of the economic process itself.He notes that economic evolution is driven by the coevolution of changes in physical technologies, social technologies--how people organize and set rules, and business plans--how people behave to exploit the technical and social innovations.The rest of the book is devoted to the detailed description and analysis of these three elements. It is very exhaustive, but at a high level of abstraction. For example, there is little or no discussion of the actual technological innovations in our history (except that of making stone tools, which is included to make a point about the properties of invention). He examines all these phenomena from many different angles which I will make no attempt to summarize.Beinhocker is a master of inductive reasoning, going from the detailed reality to abstract patterns. His grasp of the consilience of the many dimensions of economic behavior is impressive, and the range of his interests and knowledge is downright astounding. I will admit that my reaction on my first reading of the initial chapters was negative: I thought he was painting a negative picture of past economic thinking with the intent of resurrecting it under new labels as new thinking. I was wrong, although I think much of old thinking has held up better than he seems to sometimes imply. But this profound book leaves little doubt that digital-computer-enabled Complexity Economics has and will open the window of our understanding of the creation of wealth very much wider than it has ever been.

This book covers so many interesting topics, that it is enjoyable by almost everyone, except probably by those who dislike research with a distinctive Santa Fe Institute flavor. I can clearly understand why defenders of economic models based on "market equilibrium" dislike this new trend. Basically what results from this theory is something like saying "the predictions you make using the market equilibrium model guided by the invisible hand with some random noise are oversimplified and do not account for several things. According to our model the markets behave like chaotic systems and basically results are independent of initial conditions and in the end are unpredictable", so it says past theories are useless to predict the markets without offerering a better solution. This is almost unbearable for the rational mind...In this book you will find excellent explanations of complex adaptive systems, evolution and its driving forces (diversification, selection and amplification), adaptation, sustainable success, systems theory, entropy and the second law of thermodynamics, power laws and random distributions, agent based modelling, emergence (global patterns resulting - "emerging" - in a system derived from the individual behavior of its constituents), game theory, the psychology of decision making and of the markets, etc. The concepts are clearly explained (as clear as in any book on such topics aimed at the layman, obviously without the maths).Regarding economics, you will find a very brief history of economic theory from Adam Smith to our days, which the author calls Traditional Economics. Then you can read about a new trend which the author calls complexity economics, which introduces the notion of a non-equilibrium state. This state is the result of the individual behavior of the system's constituents and is observed mainly in complex adaptive systems (like in ecosystems and the living organisms that conform them). The author proposes that the economy presents such a non-equilibrium pattern as a result of the behavior of the individual business units that conform it. He explains the use of alternative tools like agent based modelling, to better understand complexity.You will also read about how the way the market operates (software and other mechanisms), as well as how the participants' strategies inffluence the share prices and create price fluctuations even without "financial events" to trigger such volatility. This can create booms and crashes with a much higher probability than would a random distribution, due to its power law nature.Finally, I ended up with a deep doubt. The author gives one example of how the share price of a company rocketed after a single market transaction. I can't remember the figures, but the example goes like this: Best selling price $10 - 10 shares offered at this price, second best selling price $10.40 - 1,000 shares offered at this price / Best buying offer $9.80 - willing to purchase 500 shares at this price / Market price = average of best selling and best buying price = ($9.80 + $10)/2 = $9.90. Then one person enters the market and wants to buy 50 shares of this specific company at best price available, he therefore buys the 10 shares at $10 and the rest at $10.40 / New market price = average of new best selling and new best buying price = ($9.80 + $10.40)/2 = $10.10 resulting in a $0.20 increase in share price due to no special event. Is market price really calculated as an arithmetic average? Isn't it at least a weighted average that considers the number of shares involved for each price or some other kind of calculation? Was this an oversimplification by the author to make his point or is it really like this?

It seems to me that any treatment of "wealth" that does NOT look at the role of armaments, armed conflicts, and geopolitics is doing us a disservice. Especially any book that purports to offer the "Radical Remaking of Economics". It's intellectually dishonest at worst, amateurish at best.Read "DEBT: The First 5,000 Years" by David Graeber instead (https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290)

Al comienzo, el libro parece ser muy entretenido y el autor hace la lectura ligera comenzando a explicar cuáles son sus objetivos, a que público pretende llegar y como quiere cambiar las perspectivas de cada uno de sus grupos metas. Menciona como la Economía ha evolucionado en los últimos años mucho más rápido de lo que había pasado en los siglos anteriores; además está seguro que en el siglo XXI la economía, debido a los cambios de paradigmas, será considerada una ciencia.Sin embargo, en general me pareció que la lectura es algo tediosa por lo repetitiva que es, el autor intenta poner ejemplos para que sea más fácil entender el tema, pero nunca logra aterrizar las ideas, da vueltas y vueltas alrededor de la idea y hace demasiado largos los ejemplos tanto que uno pierde el interés y pierde energía en esos detalles cuando había temas que valían mucho más la pena explorar.Hay partes donde el autor ejemplos en los que después de 30 páginas de desarrollo explica muy mal su conclusión y después da una pequeña explicación con un ejemplo de 2 páginas en donde entiendes más simple la idea y con mucho más sentido.En conclusión, creo que si hubiera eliminado todos estos problemas sería un libro mucho más entretenido y mejor; donde podría expresar sus ideas claramente y dejar al lector realmente analizando el tema y coincidiendo con su idea.

Me parece un libro que pone en gran contexto a los lectores, si es que se hacen pequeñas pausas para hacer lecturas sobre los conceptos, autores y las influencias que tanto recalca el actor. Sin embargo y pudiendo ser un poco contradictorio, las ideas principales se entienden de forma rápida y el contenido termina siendo un poco repetitivo

Ce livre est extraordinaire - donc ne vous attendez pas à ce qu'il soit traduit en français - et l'on a du mal à croire que son auteur, Beinhocker, travaille chez McKinsey, tant son analyse est fine, sa culture vaste et est loin du prêt-à-penser que vous impose généralement ce genre de firme, non sans vous avoir allégé au passage de vos liquidités.Là, pour un prix modique, vous découvrez les recherches uniques du Santé Fé Institute sur la systémique appliqué à la compréhension du fonctionnement des sociétés humaines. Vous comprenez pourquoi toutes les "solutions" linéaires du NYAKAFAUKON ne peuvent marcher, pourquoi le marché ne peut pas réguler l'économie ni bien sûr la société, pourquoi la privatisation des renseignements téléphoniques est une catastrophe et bien d'autres idées à la mode également...On découvre une foultitude d'auteurs, c'est plein d'exemples et le lecteur ne doit pas se laisser rebuter par la langue car c'est du bon anglais aisément accessible.

Buen libro. Es interesante el punto de vista del autor