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The Origin of Wealth: Evolution, Complexity, And the Radical Remaking of Economics

Eric D. Beinhocker

4.27 · Rating details · 1,424 ratings · 110 reviews

Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? In The Origin of Wealth, Eric D. Beinhocker argues that modern science provides a ...more

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Hardcover, 527 pages

Published June 1st 2006 by Harvard Business Review Press (first published 2006)

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The Origin of Wealth by Eric D. Beinhocker

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Feb 24, 2010 Kristin rated it it was amazing · review of another edition

About 5 years after finishing college, I started to feel that there was a major, glaring deficiency in my liberal arts education. As a young, naive, and somewhat annoying undergraduate, I had a deep and mostly indefensible aversion to the idea of taking an economics class. It's all a bunch of B.S., I thought--and whatever isn't B.S. would certainly offend my pale pink sensibilities at the time. I managed to get by without having to take one. However, as I got to be a little older, I starting to About 5 years after finishing college, I started to feel that there was a major, glaring deficiency in my liberal arts education. As a young, naive, and somewhat annoying undergraduate, I had a deep and mostly indefensible aversion to the idea of taking an economics class. It's all a bunch of B.S., I thought--and whatever isn't B.S. would certainly offend my pale pink sensibilities at the time. I managed to get by without having to take one. However, as I got to be a little older, I starting to develop a curiosity (or at least an insecurity about my cluelessness) about markets: where do they come from? How do they work? What holds them together? And, what is it that all these finance people and investment bankers keep rattling on about that mostly goes right through me? Economics was shrouded in a veil of mystery, but I wasn't sure how to begin to address my lack of understanding.

And, so, when I stumbled upon this book, I figured it would be a perfect introduction. It turned out to be exactly that, and then some. Much to my surprise and delight, it actually affirmed some of the suspicions I formed in my youth about the discipline. Beinhocker spends the first half of the book raking traditional economic theory through the coals. In their desperation to be taken seriously as "real" scientists, economists of the 19th century began borrowing heavily from emerging theories in physics and applying them to the dynamics of the economy. Not only that, they believed they could explain the entire workings of the economy with equations in the same way that, say, Maxwell did with electromagnetism. As Beinhocker shows, this was to disastrous effect, forcing these "scientists" to push aside anything that didn't fit with their equilibrium equations as a black-box, exogenous force. And, as Beinhocker goes on to demonstrate, it is precisely these "exogenous forces" that not only make economics interesting, but also are the very engine of the economy itself. Indeed, they are responsible for the incredible growth in wealth experienced throughout the world's economies starting in about 1750.

And so, the second half of the book is an introduction to the emerging field of "complexity economics," which views the economy not as a closed system seeking equilibrium but as a complex, ever-changing, adaptive system. In other words, it is an evolutionary system in the same way that life on earth is. And so, much of the language and theory for describing it comes out of evolutionary theory. Now, Beinhocker is at great pains to prove that he isn't falling into the same trap-of-analogy as the traditional economists by borrowing from the sciences. He repeatedly points out that the traditional economic view is that economic equilibrium is like mechanical equilibrium. In contrast, complexity economists say that the economy is not like an evolutionary system but rather is one. As we've no choice but to use language and mental models to describe and understand these systems, this distinction might leave some of us (myself included) a little wary.

Fortunately, much of what complexity economics--which is still in its infancy--offers is very compelling and convincing. At times, it seems a little over-enamored with computer science (particularly the section on "if-then" rules, which had my eyes rolling) as a method of modelling and explaining complex systems. But, once it moves beyond that, it has a fascinating story to tell about how organizations survive (or don't), why so many industries experience boom and bust, and--most interestingly--how our economy grew from one with just a few "products" to one with tens of billions.

The last few chapters are my favorites, when Beinhocker discusses the political and policy implications of complexity theory. The best bit is about how complexity economics takes us beyond the stale, old boring left-vs.-right debates and offers a new way of looking at the economy and the best ways to nurture it.

Overall, I found this to be a terrific, extremely thorough, and very satisfying book. ...more

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Jan 21, 2009 S.P. rated it it was amazing · review of another edition

Shelves: non-fiction, favorites, thoughts, science

When I was studying engineering at University one of the subjects we had to have an overview of was economics. I wanted the read this book because to me at the time the traditional macro economics theory just didn’t make sense – too many assumptions that were self evidently wrong, and I wanted a more up to date perspective. This book, I was pleased to discover, not only explained traditional economic theories in detail but also agreed that there are basic flaws in this traditional macro economic ...more

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Jan 29, 2018 Katia N rated it really liked it

Shelves: economics-and-history

This is entertaining, intellectually stimulating and well researched book about complexity economics. If you are interested in the alternative views on economic theory, you would find it worth paying attention to. It is written in 2007, but still stands alone as a popular introduction into this field. I am surprised it has not been updated and there is nothing more recent on the topic.

The book is more than 500 pages, but I never felt bored. There is a part where Mr Beinhocker is trying to formul ...more

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May 10, 2011 Jonas rated it liked it · review of another edition

Part I starts out with a nice overview of the development of "traditional economics" since Adam Smith. The characterization of the work of Walras as a "false turn", importing physics metaphors into economics, is particularly striking. The physics framework was maintained until well after WWII with the neoclassical synthesis, while 20th century physics had already moved away from its deterministic 19th century predecessor. Chapter 3 talks about the work at the Santa Fe Institute (SFI), where comp ...more

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Mar 07, 2019 Otto Lehto rated it it was amazing

Beinhocker's monumental book is an undeniable achievement. It popularizes cutting-edge economic ideas in an exceptionally gripping, awe-inspiring, and palatable way. It thereby reaches the apex of the very best books in popular economics. Whether you primarily want to learn about business, economics, sociology, politics, or evolutionary theory, this book has it all covered.

As opposed to many other books in the category, Beinhocker treats his reader with level-headed respect. Without dumbing dow Beinhocker's monumental book is an undeniable achievement. It popularizes cutting-edge economic ideas in an exceptionally gripping, awe-inspiring, and palatable way. It thereby reaches the apex of the very best books in popular economics. Whether you primarily want to learn about business, economics, sociology, politics, or evolutionary theory, this book has it all covered.

As opposed to many other books in the category, Beinhocker treats his reader with level-headed respect. Without dumbing down the science too much, he manages to convey complex and technical ideas in an intuitive way. The book explores the insights of complexity and evolutionary economics and how they apply to economics, business, and politics. The book weaves a coherent narrative that explains how the complex order of the global economy emerges from the primordial soup of complex adaptation. The central message is that complex adaptive systems are hard to predict and control, and they are subject to certain tendencies and patterns that cause unique challenges for managers, civil leaders, and politicians. And the same challenges touch the ordinary citizens in their everyday economic and social decision-making. This means that many of the "scientific" models of economics, sociology, and politics need to be periodically updated to be more attuned to, and responsive to, the evolutionary challenges of complex adaptation.

Through the book's pages, all aspects of human life are affected, from business strategies to government policies, from consumer patterns to social norms. The book covers all those aspects; some of them better than others, but all in a relevant way. In so doing, the book challenges many of the assumptions of both the left and the right; and the models of both economics and sociology. It is not afraid to enter into the "nature/nurture" debate, and some of the book's best insights deal with the way in which hardwired biological imperatives are affected by social construction through schooling, parenting, social networks, cultural norms, and ethical revolutions. In particular, the book forces political economy to refocus on "Social Technologies" like ethical norms as part of the arsenal of social engineering required to empower societies to survive and strive. It thereby allows economics to be reintegrated into the interdisciplinary heart of the broader humanities.

The only negatives I have are three small points. First, two small gripes: 1) It is a little bit on the long side. It would be tough to finish on a trans-Atlantic flight. 2) It focuses too much on business management strategies at the expense of the other important aspects of the economy.

Jumping off from the second gripe, we reach the biggest problem I had with the book: 3) In focusing on business strategies, Beinhocker is committed to a paradoxical position that is hard to reconcile with his broader thesis. On the one hand, Beinhocker rightly emphasizes how it is important for some companies to fail (i.e. that guaranteed business success is impossible) in order for the economy to be able to perform its fitness function. This is the Schumpeter / Nelson & Winter thesis of creative destruction: in order for new businesses to be born, old businesses must die out, since old businesses are often wedded to outdated strategies. On the other hand, Beinhocker emphasizes the power of companies to change their strategies so that they can survive and thrive in the complex environment. This would enable them to outwit creative destruction from within. It doesn't seem credible that companies can exert that much control and prediction over their future. The complex adaptive system perspective forestalls any such aspirations, as Hayek and Schumpeter knew.

That said, the book is mostly a resounding success. It touches on all the important aspects of the complex adaptive system paradigm, and it manages to fuse the insights of hundreds of high quality research papers into an extraordinarily compelling and beautifully written package. This makes the book, despite its length and business focus, an easy recommendation for the educated general reader. ...more

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Aug 14, 2011 dh rated it really liked it

Another eye-opening book.

I've read circa one fifth of the book and the stuff in the part was enough to break down all the stereotypes and misconceptions that I had, partly due to the conventional education of economics- I am an economics major.

Still yet, of the things argued by the author there are some that I cannot fully understand or know whether the argument is true or not. One of them is this ;

Economics activity is firmly rooted in the real, physical world, and thus economics theory cann ...more

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Dec 05, 2020 Daniel rated it it was amazing

The origin of wealth is knowledge. But this book is about complexity economics. The first part of the book explained how traditional economics misses the mark. Equilibrium is never reached, and if you see money on the pavement, just grab it.

The second part explained evolution and how evolutionary models better explain what happens in real life better. Many Business plans are tried but only a few become successful and grow. I think this part is too long. Physical technology and social technology The origin of wealth is knowledge. But this book is about complexity economics. The first part of the book explained how traditional economics misses the mark. Equilibrium is never reached, and if you see money on the pavement, just grab it.

The second part explained evolution and how evolutionary models better explain what happens in real life better. Many Business plans are tried but only a few become successful and grow. I think this part is too long. Physical technology and social technology, when put under the selective pressure of the market, produce value.

So how does it help?

1. Strategy. Forget about getting the right strategy. What the dominant strategy now becomes obsolete when technology/taste change or when situation changes. Instead, do what Bill Gates did: after DOS, he mainly invested in DOS and windows but also had alliances with IBM OS/2, Unix and apps, just in case those became dominant. Windows 1.0 and 2.0 were flops, but then 3.0 came and the rest is history. Venture capitalists do the same thing.
2. Firms. They can be hierarchical and efficient, or flat and creative. Without external stress the hierarchical guys dominate; with stress those with creative types dominate. Firms that weather through many crises manage to hold on to their creative types despite years of growth.
3. Finance. Per Andrew Lo’s adaptive markets. Many strategies exist, such as value investing or charting. Charters and standing orders increase volatility. Price fluctuates around values and can be way off by decades.
4. Politics. Cooperaters vs free riders. Too many free riders and a country becomes poor. Cooperation generates massive wealth but mutual trust of citizens is crucial. This cultures matter. Cultures that emphasise about family too much have problems for its citizens to trust others outside their family, and remain poor. Both individual responsibility and generous welfare miss the mark; one should protect the public from downside with universal health care and social safety net. Remove racism. Make every school a good school with central (not local) funding. Raise teachers’ pay.
This is a solid 5-star book!

...more

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Sep 18, 2011 Don rated it liked it · review of another edition

Shelves: modern-society

Beinhocker tells us that there is a revolution in the making in the world of economics. The orthodoxies of the equilibrium models have long since ceased to tell the truth about the way markets work. Not only are they not able to render a proper account of the reasons why they periodically fail, but also what is positive about them in the sense of what they do well.

The book tells a good story of what economics attempts to be as a science and the tools it has developed to fulfil its mission. Right Beinhocker tells us that there is a revolution in the making in the world of economics. The orthodoxies of the equilibrium models have long since ceased to tell the truth about the way markets work. Not only are they not able to render a proper account of the reasons why they periodically fail, but also what is positive about them in the sense of what they do well.

The book tells a good story of what economics attempts to be as a science and the tools it has developed to fulfil its mission. Right from its earliest days, in the searches made by Walras, Pareto and the other luminaries it aimed at a model of predictability which matched that of the physical sciences. Mathematics lured the pioneers down the path of equations which suggested that equilibrium was the outcome of all the encounters which brought buyers and sellers together in the marketplace. Success in outlining the shape of business cycles lured the nascent science in towards an orthodox account of the way systems work which made the new profession very useful to rising economic elites.

But Beinhocker sets out the compelling argument that it was a mansion built on sand. Neither buyers nor sellers work the way they are supposed to in the traditional accounts of markets, and the inconvenient facts of time and imperfect knowledge were permanently present to send apparently ordered systems skittering off into crises and depressions for reasons which were unfathomable to the cognoscenti.

For Beinhocker, the problem for the pioneers of economics was that they chose the wrong physical science as the model to guide their endeavours. Physics, which in Newtonian terms, tended to emphasis the conservation of energy within systems that transformed it through the phases of matter and energy, was yet to properly work through all the implications of entropy, which saw a rise in the amount of disorder over time. It is not equilibrium which represents the endpoint of the mechanical processes of the universe, but formless chaos.

Yet still we exist. And not just that, we go out and do things which certainly give the impression that we are producing higher levels of order all the time. Beinhocker says that there is a science which, whilst being rooted in the depressing fact of entropy, offers and understanding of the way in which local systems or order do arise all the time. It is the science of evolutionary theory.
So, the revolution promised in this book is fundamentally about a change of perspective. Instead of expecting the existence of order to be confirmed by number crunching equations, we have to learn to think of it as something dragged out of chaotic conditions and always capable of slipping back there. Evolutionary theory provides the best way to think about the way in which economies are constructed over time by agents who start off with very simple needs and simple ways of meeting them, to become in time the sort of people who need shopping malls, eBay and international spot markets to get through the day.

Like a lot of evolutionary enthusiasts, Beinhocker often seems to strain to find the mechanisms in the realm of actual economics which does the work of genes and DNA in biological evolution. He comes up with candidates in the form of the firm and business plans to perform this role. The most unconvincing part of his argument is the one which strives to show how bog standard accounts of business success, like Jack Welch of General Electric, do the business of running the Red Queen Races which are supposed to be the perfect analogy for evolution.

The reason why this doesn’t entirely work for me is due to the fact that the idea the firm is not constituted in the way that biological evolution requires its agents to be, as a discreet entity marked off from its environment by a membrane which controls the interactions with things like food, air and germs, and which is capable, through the additional agency of a cooperating mate, or reproduction. It is rather a product of law, culture and practices each of which is capable of independent adaptation to environmental prompts which are only tangentially related to the interests of the firm.

The examples of the stakeholder and shareholder models of the firm illustrate this point. In the former, the firm survives because it serves the interests of a wide group of people – workers, customers, economic planners, government ministries, local communities as well as shareholders – whilst the latter is only concerned with shareholders. Beinhocker says the difference is illusory, and in fact all different types of firm really have shareholders at heart.

This is just wrong, but it services the author in making the case that that the revolution in thinking he wants to promote will leave markets more-or-less intact and in their present form. Shareholder firms have DNA (business plans) which allow them to adapt better to the turbulence of unrestrained free markets when stakeholder firms would be lumbered with the messy business of brokering agreements and deals which look after the concerns of all the parties. A particular type of economic growth, of the bubble kinds which have emerged since the 1980s, would be curbed if shareholders conceded more to stakeholders, but writing from the standpoint of Europe, November 2011, which would seem to be a good thing.

But like many of these books which seek to apply evolutionary theory to the social world, the errors of epistemology are not complete barriers to insight and inspiration. There’s stuff here that is well worth thinking about, particularly for those who’d like to see an even more radical revolution than the one Beinhocker was thinking about.
...more

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Mar 22, 2018 Дмитрий Филоненко rated it it was amazing

Before reading this book I had almost no idea about economics. In university I studied computer science, and we had a half-year course of economics which was meant to be one of a few ‘humanitarian’ courses, just in order to avoid making from us, students, finished computer nerds. All I remember was two intersecting curves for supply and demand, and a boring lecturer talking not that much about economics as about the Dulles' Plan aimed to undermine the Soviet Union. It was in 2001 when the Soviet Before reading this book I had almost no idea about economics. In university I studied computer science, and we had a half-year course of economics which was meant to be one of a few ‘humanitarian’ courses, just in order to avoid making from us, students, finished computer nerds. All I remember was two intersecting curves for supply and demand, and a boring lecturer talking not that much about economics as about the Dulles' Plan aimed to undermine the Soviet Union. It was in 2001 when the Soviet Union was 10 years dead.

I should admit that ’The Origin of Wealth’ by Eric Beinhocker is one of the most brilliant books I’ve read. And the reason is not only in the subject, in economy per se. It’s a wonderful sample of a wide view which is so important these days, on the current level of science development. Yes, science becomes more and more specialized. There are, for example, no more ‘just’ physicists but rather astrophysicists, specialists in the solid state physics, in the molecular physics, etc. So they say there is no more room for universal geniuses like Leonardo da Vinci. At the same time we can see that some puzzles, especially those ones in traditionally ‘humanitarian’ field, require approaches which are conventional in natural sciences like physics or biology for example. Indeed, you can’t measure a feeling with a ruler (though even this is already controversial). But it’s more and more obvious that many social processes can be modeled using mathematical and physical apparatus. What used to be thought of as rational in human nature is not that rational. What used to be thought of as random in the life of society is not random in fact, but pretty deterministic. It’s just that even deterministic interactions do not presume possibility to solve and to predict the future behavior. And it’s really astonishing to read how modern economics is reconciled with the famous laws of thermodynamics! Which basically creates a new starting point for a new theory of economy.

Author starts with the description of Traditional economics which found its origins at the second half of XIX century and hasn’t changed much up to the end of XX century. It’s here we have those two curves of supply and demand with a single intersection point which assumes an equilibrium... which is never reached.
However the Traditional model is limited with some unrealistic assumptions like perfectly smart people, comprehensive information available immediately to anyone, deals taking no time and no transaction costs, etc. Another problem is that Traditional model keeps many important phenomenons outside the door considering them as external forces. So technological progress, innovations, development of social structures and entrepreneurial drive are left aside. Well, they exist, they definitely impact economy, but they are external forces, they do not find any place and any explanation within the economy theory.
Ok, that could be fine if only such theory worked. But it does not! And it’s another very interesting though not direct outcome of this book. How sticky we can be to some theories which at some time were found bright. Even when such theories are not supported with real data, still! It’s all about a power of authority. Many really prominent people made their fortune and some even got Nobel prizes on the wrong ground. But it’s not this that is sad. Sad is that it took many decades after first voices against this model had been heard before something started changing.

Then Beinhocker presents a Complexity economics approach. This approach is based on a quite rapidly developing scientific tool: complex adaptive systems. A phenomenon is modeled with introduction of some number of interacting agents. Each agent is endowed with a few rules for interaction with the environment and with other agents. These rules are taken from real life observations. Like for example instead of thinking about any person as perfectly rational we can introduce an agent with such close-to-real-life rules: 1) if very hungry -> buy some food in the very first store, no matter the price; 2) if not hungry -> find the cheapest food in stores not farther than 5 minutes walk from the agent’s place; 3) if it’s a weekend and an agent possesses any information on discounts in food stores -> allow him/her to buy food in proximity of 20 minutes walk. Then there can be introduced agents representing food stores with their own rules for setting prices and discount policies. And then such system can be programmed on a computer and run. An emergent result of such system is very difficult to calculate analytically. Mathematically it’s a huge system with many variables and time-lags. Basically impossible to solve. But programmed model can give really interesting insights into behavior of such system. One may expect quite chaotic picture. But after a number of iterations some patterns may crystallize. Then playing with agents’ or environment’s parameters a researcher can find interesting phenomenons in the system.
This approach was applied to economy. And test results were remarkably close to those from real markets.

After this Beinhocker goes further: what basically makes the things go round? Why do new businesses pop up here and there? Why do they collapse? Why is entire wealth growing? The answers to these questions should be a part of the model, not just external magic forces. And in order to answer author makes quite a natural choice. The answer is evolution. In economy the same laws of evolution work. If in bio-world it’s genes who compete for resources and for reproduction by means of their hosts - biological creatures, then in the world-market such genes are small bits of technologies - physical and social - which make some bigger ‘organs’ (management approaches, production tools, products’ features, customer service offers, logistic solutions, performance improvements, etc) which in turn make ‘organisms’ - business plans for making some products or services. So it’s not exactly companies who compete. It’s technology-genes many numbers of which make business-plans. The same as in bio-world the complexity is growing. Inventing one new great thing expands horizon even further making a ground for new improvements or inventions.

Is this all? No! Beinhocker admits that Complex economics and evolution view make things very complex. So if Traditional economics tried to predict the market behavior (though wrong) with the new theory it’s almost impossible to do. But although this theory doesn’t give us a tool for predictions it explains how all this really works. And it’s a very important knowledge. It can be used both on a relatively micro level like managing a company in the ever changing evolution system and on a macro level like understanding the reasons for some states being very rich and some incredibly poor or solving the 200 years old false dichotomy “Left-Right”. How this all relates to culture (as an environment for fostering particular economy-development-genes). How this all relates to moral (Beinhocker introduces thoughts of the many prominent anthropologists, contemporary philosophers, political-thinkers and other). How this all impacts society and is impacted by society. And at the end of the book the economics as a piece of puzzle takes its place in the picture of the whole culture, whole human civilization.

Really exciting reading. Even though many pieces of puzzle still should be discovered and Beinhocker honestly admits this. The author doesn’t make a hero from himself. The number of mentioned scientists, thinkers and businessmen is overwhelming. And he gives them all deserved respect including those whose assumptions were eventually wrong and made the science to take the wrong turn for decades. ...more

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Jul 17, 2010 Juan Pablo rated it really liked it · review of another edition

Shelves: non-fiction, economics, complexity, wealth, complex-dynamic-systems

I've been meaning to thoroughly destroy economics for some time now and after finishing this book, I'm saying to myself "Heck, maybe I will if only for its necessary rebirth."

I studied econ back in college and the more I learned, the more painfully I experienced the disparity between reality and the "science" most powerfully endowed to observe and prescribe the measures for our understanding of human and societal interaction. Let me clear up the "": economics became over a hundred years a powerf ...more

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Aug 01, 2018 Lee Robinson rated it it was amazing

As an economist who has grown very disillusioned with mainstream economics (or was never illusioned to begin with), I am so happy this book exists.

It is a brilliant outline of how the newly emerging field of complexity economics can help to reform economics from its reliance on static, equilibrium concepts that have hampered the discipline and held it back for over a century. And although this book is subversive, it is not one of the run of the mill straw man range of books having a pop at econo ...more

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Oct 31, 2008 Tyler rated it really liked it · review of another edition

The first 85% of this book was worthy of a 5 star rating and one of the most interesting books I've ever read. His analysis and linkage between Evolutionary Theory and the Economy was compelling. It provides us with a whole new lens to see the economy through and Benhocker's ideas of complex adaptive and open systems, I believe, to be extremely relevant. The case he makes against Neo-classical economic theory is long overdue. As Beinhocker makes clear at the opening of the book "Origin of Wealth ...more

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Dec 25, 2016 Tadas Talaikis rated it it was amazing

Shelves: economics

I just saw some seminar notes about it. Finally, that book I had heard few years ago, about the end of left and right nonsense, - complex rational realism. ...more

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Nov 13, 2020 Erika RS rated it it was amazing · review of another edition

Shelves: kindle, owned, history, economics

I consider The Origin of Wealth by Eric D. Beinhocker to be the most important book I've read this year. It brings together insights from psychology, network theory, complexity studies and more into a incomplete-but-illuminating view of how societies have created wealth over time. Wealth, in this case, is about so much more than financial value. It's the sum total of non-relational things that humans find valuable.

The perspective of complexity economics shows the shallowness of our common politi I consider The Origin of Wealth by Eric D. Beinhocker to be the most important book I've read this year. It brings together insights from psychology, network theory, complexity studies and more into a incomplete-but-illuminating view of how societies have created wealth over time. Wealth, in this case, is about so much more than financial value. It's the sum total of non-relational things that humans find valuable.

The perspective of complexity economics shows the shallowness of our common political divides. While it doesn't provide answers, it does show that the questions are much more nuanced than either the Left or the Right thinks about them.

This book is about so much more than economics, in the narrow academic sense. It's about humanity and how we achieve things in groups.

This book starts with a critique of traditional economics. The primary problem with traditional economics is that it makes unrealistic assumptions about human behavior and system dynamics. Traditional economics assumes that economic agents are perfectly rational actors with perfect knowledge. It also assumes that economies are stable systems that only temporarily leave equilibrium in the face of external factors. Even with these limiting assumptions, traditional economics has been able to introduce many powerful ideas into reasoning about the economy. However, these assumptions are wrong in ways that make many of the economic "laws" that are used to guide real policy fundamentally flawed.

A more realistic set of assumptions completely changes the nature of economic systems.

They are dynamic. They are constantly changing in response to internal factors, not stable systems responding to external inputs.

They are made of individual agents with incomplete information. These agents are rational, but they are inductively rational. They identify patterns based on of past experience and update those patterns as they acquire new information.

The actions of agents are constrained by network structure. Agents are limited in who they can interact with and information takes time to propagate across the whole network.

The system evolves over time. Both what success looks like and the best strategies for achieving success change as the agents interact in the system. These interactions give rise to macroeconomic phenomena, such as boom and bust cycles.

In dynamic systems, such as economies, best ways to optimize is to apply an evolutionary algorithm. This should not be taken as saying that the economy has exact analogues for biological evolution. Rather, that it follows a generic evolutionary algorithm where strategies that best fulfill a fitness function are amplified and modified over time while less fit strategies decline.

Over time, physical technologies, social technologies, and business plans propagate or decline based on their fitness for creating value for people. The fitness function is based both on physical constraints (good building materials must actually hold things up) and on human values. This constantly evolving system leads to the growth of wealth.

There is so much more to the book than this. For example, despite the focus being economics, I consider this book one of the best leadership books I've read this year. The complexity view of economics realizes that we cannot understand the economy without understanding human interactions in general. In the end, that's what makes this such a powerful book. ...more

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Apr 01, 2013 Jerry Ward rated it really liked it

Recommends it for: the seriously interested in economics

Shelves: economics, history, civilization

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 Ec ...more

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Feb 16, 2021 Jackson Barkstrom rated it it was amazing

Solid book. Showed more clearly than anything I've previously read that a small amount of irrationality in markets can cause large deviations from the efficient market hypothesis. Adding a few technical traders to an otherwise-rational stock market can lead to some crazy price action, and adding time delays in a supply chain's response to demand leads to crazy swings in production. I liked Beinhocker's use of the concept of attractors instead of the concept of equilibrium (equilibriums don't usu Solid book. Showed more clearly than anything I've previously read that a small amount of irrationality in markets can cause large deviations from the efficient market hypothesis. Adding a few technical traders to an otherwise-rational stock market can lead to some crazy price action, and adding time delays in a supply chain's response to demand leads to crazy swings in production. I liked Beinhocker's use of the concept of attractors instead of the concept of equilibrium (equilibriums don't usually really exist because of the ever-unstable interactions between agents in a population, a la a red queen race), as well as his use of the concept of punctuated equilibriums from evolutionary biology (network effects/keystone technologies create a punctuated period of rapid change).

Beinhocker argues that we need to evolve more advanced social technologies to accompany our physical technologies, and I find his argument compelling. Humans are bad at cooperating at a large scale, especially when this cooperation involves producing, aggregating, and sharing information. Moving our world closer to a "global society of minds" via new social technologies might be valuable.

Beinhocker's Hayekian critique of the impossibility of central planning could use some reexamining in light of advances in data aggregation and artificial intelligence. It's obvious that solving for equilibrium given individual preferences is NP-hard, but a central planner could form an approximate solution to the problem and then move towards equilibrium through real-time feedback from citizens. Beinhocker writes, "In the absence of actual knowledge of what society wants, and with no mechanism for enforcing a selection of those things, the Big Man hierarchy of the state will simply produce whatever it decides to produce." However, I think a strong enough state could collect real-time data from its citizens, figure out their preferences, and then use these preferences as real-time feedback for this "impossible" optimization problem. I like markets, and I think markets are often the most effective tool for resource allocation, but it upsets me that central planning is written off without more critical thought.

Can be long and dense when getting into the nitty-gritty of why wealth creation is an evolutionary process (I'd recommend skimming these parts) but worth reading overall. Shows we can treat a toy economic system as nonlinear and dynamic via computer simulation and learn many things. ...more

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Dec 26, 2020 Eric van der Toorn rated it really liked it

I received this book from my father for my 15th birthday because he `could not read the small letters'.
Now, 6 years later, I can consider myself part of a set of readers extraordinary in their due diligence and dedication for having finished this book.
While written as a popular introduction on the book, this 500-page literary work engulves one in stats surrounding economic theory, both the incumbent current champion of the day, `Traditional Market Theory', as has been developed from Adam Smith o ...more

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Aug 17, 2020 Ronald Diehl rated it really liked it

Warning: I have too much free time and I’m going to use this review as a venue to express some of my own thinking on economic evolution.

Strange Inversions of Reasoning

The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process.

-Joseph Schumpeter

This is a heady book, and an ambitious one, but fourteen years after its publication, I feel the field it speaks for still hasn’t lived up to its level of ambition. Evolutionary economics remains a niche fi ...more

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Feb 21, 2020 Sergey Bir rated it it was amazing

Recommends it for: Everyone

This book is packed with ideas and anecdotes circling around the topics of evolution without an end state and bottom-up modeling. It felt like an economic theory book, a history book, a management book, a politics book, a biology book, even a self-help and relationship advice book. While the diversity of applications for the core ideas is plentiful the author manages to keep statements grounded in research and is wary of slippery paths leading to hot air speculation. It was a delight to see how ...more

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Jul 18, 2013 Jonathan Jeckell rated it it was amazing

Shelves: ethics, information-science, political-science, economics, innovation, sustainability, science, strategy, favorites

I went through a ridiculous number of highlighters and tape flags marking this book. It provided a fascinating look at how theorists are bringing economics into the 20th Century. Existing economics models borrowed from physics, and thermodynamics in particular, most notably with the concept of equilibrium. This book shows how the economy (and much else) are not so simple, but follow rules found in complex adaptive systems and evolution. Moreover, it provided some fascinating insights into organi ...more

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Jul 04, 2013 Saku Mantere rated it liked it

I am deeply ambivalent about this book. On the one hand, it is a splendidly written introduction to the limitations in classical economics. It is also a great intro to complexity theory. Yet, in its insistence that complexity is a theory for everything (from doing firm strategy to transcending the left-right dichotomy in politics), the book's main argument is trivialized and becomes almost ridiculous. ...more

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Feb 24, 2019 Zoltan Pogatsa rated it really liked it · review of another edition

A fairly good introduction into behavioural economics. Good read.
Shame about the last, political chapter though. The entire book is full of very strong points about how the political Right and Neoclassical economics are wrong. Then in the last chalter sets up the strawman of Stalinist central planning as the Left, and states the obvious, i.e. that it is wrong. Was he to use Social Democracy as the definition of the Left, his economics would agree with it .

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Dec 25, 2012 Anup Gampa rated it did not like it

I didn't have the advantage of Marx's theory when I read this book, but I enjoyed it. I might like it a lot more now! ...more

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Sep 07, 2019 Dan Drake rated it it was amazing

So many amazing ideas. Beinhocker presents an alternative model for economics: instead of "Traditional Economics" which uses classical mathematical models with perfectly rational actors -- and which fails to explain many things we find in the real world -- he proposes a computational, model-based, evolutionary model.

Perhaps I'm giving it away, but the origin of wealth ultimately, for Beinhocker, is the same as the origin of the complexity of modern organisms: evolution.

The author also discusses ...more

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Feb 01, 2019 Ganesh Poomal rated it really liked it

In Origin of wealth, Beinhocker attempts to answer what went wrong in the traditional view of economics where participants are characterized as infinitely self interested and infinitely far sighted. Author explains drawbacks of this view and how new complexity view of economics differs from this view. Author mentions that this new complexity view does not help us predict economic outcomes in future but explains the several observations we see in economy for example, boom and bust cycle in econom In Origin of wealth, Beinhocker attempts to answer what went wrong in the traditional view of economics where participants are characterized as infinitely self interested and infinitely far sighted. Author explains drawbacks of this view and how new complexity view of economics differs from this view. Author mentions that this new complexity view does not help us predict economic outcomes in future but explains the several observations we see in economy for example, boom and bust cycle in economics.

The main departure from traditional view is that economy is a class of evolutionary algorithm- Differentiate, select, amplify. This view led economists to agent based modeling. In this view, the macro trends are explained by the interactions of billion users with varying degrees of skills, strengths. A small change in this eco-system have a potential to cause disproportionate divergence in the path of economy. Another important property is path dependence. It is not just the quantum of change but also the context determines the extent of consequence. These properties of economy cause extreme difficulties in prediction.

Several macro trends that we see in the economy are due to emergence, meaning the properties exist only in the sum but not in individual components. For example, wetness is an emergence property, individual water molecules do not possess wetness property.

Author also spends time to explain

1. Why this bottom up economy works?
2. Why do we see almost 1B different goods in market today compared to a few hundreds in tribal societies.
3. Why there is an explosion of wealth in the last 150 years.

World is full of Non Zero Sum opportunities. In that cooperating generally helps. This also explain why people evolve to have skills to cooperate. Years of studies say that humans are conditionally reciprocating and altruistically punishing. In several areas of the book I really enjoyed the discussion on agent based modeling.

In the evolutionary view, the select function of environment is very important. In economy, the fitness function of the economy can be influenced by creation of Institutions which decide the rules of the cooperation and more importantly, institutions for punishing people who violate these rules of cooperation. Depending on the nature of these institutions economy at different places differ.

Reading this book broadened my view of economy and the way it functions. It also helped me to understand why the progress we made can not be taken for granted. The future course of economy depends on the resilience of the institutions, attitude of people who participate including the willingness to accept scientific conclusions and attitude toward democracy. ...more

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Dec 13, 2018 Mbogo J rated it it was amazing

The book gets all the stars mostly for the breadth of knowledge covered and it picks an additional star for the rendition.The book was written more than a decade ago but its ideas are still fresh and have even spawned new books specializing in individual fields examined here. It is also a good thing this book was written before the 07 financial crisis. It ensured it was not held captive by it or get caught up in the never ending battle of why Economics did not predict it.

The central idea of the The book gets all the stars mostly for the breadth of knowledge covered and it picks an additional star for the rendition.The book was written more than a decade ago but its ideas are still fresh and have even spawned new books specializing in individual fields examined here. It is also a good thing this book was written before the 07 financial crisis. It ensured it was not held captive by it or get caught up in the never ending battle of why Economics did not predict it.

The central idea of the book is the new(or lets say newish) field of economics called complexity economics. This field holds that the economy is not in an equilibrium but rather its a tapestry of various interacting entities and some of its outcomes are emergent phenomena rather than things which can be traced from first principles. While that might be the gist of it, it is a gross oversimplification, this is a rich field with very novel ideas and I would wish that every student embarking on an economics study should check out this book.

Despite all the good in complexity economics, it has had mixed success in the practical world and after this book I know why. It's big on describing why something happens but very crippled on predictive powers and without that it will never find its way to policy. May be AI will add the extra computing power needed to make it prescriptive or may be its horizon is just the descriptive kind. Either way, it is the future of economics.

One little qualm I had with Eric was his speculative idea of treating business plans as the gene equivalent of an economy and then going ahead to build a very, very speculative idea of an economy evolving similar to biological evolution. On that idea he was standing on very swampy grounds. I will also call him out on the folly of pummeling traditional economics in the early chapters for relying too heavily on physics' idea of equilibrium and then later in the book he fell into the same trap trying to fit the concept of entropy into the modern economy. Aside from those two speculative ideas, I agreed with him the rest of the book. This is one of those books where the time investment in reading it paid supernormal profits in knowledge gained. Highly recommended. ...more

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Apr 12, 2018 Jan Poruba rated it it was amazing

One of the most stimulating books I have ever read. The answer to the question on the origin of wealth is very simple. Wealth creation is the product of the evolution – basically the same processes that have driven the growing order and complexity of the biosphere. Don´t worry, it is not another attempt to renew Social Darwinism. Rather author sees evolution as something more general, an algorithm for innovation. Put it really simple, the evolution of the economic system from making stone tools ...more

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Nov 12, 2019 Fahasa rated it really liked it

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May 07, 2020 Samuel Peck rated it it was amazing · review of another edition

A tremendously fascinating book - multidisciplinary, insightful and lucidly written.

Not the first time reading a book about complexity economics and emergence, but this is one that illustrates the concept in such a clear, logical, bootstrapping manner, and also elucidates the practical implications of the concept.

To borrow the author's metaphor, the concept of economics as still currently taught in schools - with all of its ivorytowerist, unrealistic assumptions - is the equivalent of Cuba wit ...more

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Nov 13, 2017 Zach rated it liked it

It's worth noting that it's going to be difficult for me to appreciate a book about economics as more than a study of human psychology. Beinhocker's fundamental view is that economics should be studied as a complex system rather than a constantly balancing, predictable see saw.

And while he provides rich examples to substantiate his view, it's difficult to not read this book as a defensive thesis of the field of economics as a whole in light of nearly endless data demonstrating that economists a ...more

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About Eric D. Beinhocker

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Complexity Economics: Proceedings of the Santa Fe Institute's 2019 Fall Symposium (Dialogues of the Applied Complexity Network)

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“Complexity catastrophes help explain why bureaucracy seems to grow with the tenacity of weeds. Many companies go through bureaucracy-clearing exercises only to find it has sprung back a few years later. No one ever sits down to deliberately design a bureaucratic muddle. Instead, bureaucracy springs up as people just try to optimize their local patch of the network: finance is just trying to ensure that the numbers add up, legal wants to keep us out of jail, and marketing is trying to promote the brand. The problem isn't dumb people or evil intentions. Rather, network growth creates interdependencies, interdependencies create conflicting constraints, and conflicting constraints create slow decision making and, ultimately, bureaucratic gridlock.” — 1 likes

“This tension between interdependencies and adaptability is a deep feature of networks and profoundly affects many types of systems. Software designers see it when a program becomes so complex that any enhancement or bug fix introduces five new bugs. Architects see it when a client asks them to move a wall just one foot, and it has knock-on effects that send the project's cost sky-high. Some biologists, such as Stuart Kauffman, believe that this tension creates upper limits on the complexity of organisms. In economic organizations, there is a clear trade-off between the benefits of scale and the coordination costs and constraints created by complexity.” — 0 likes

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