Eric D. Beinhocker, "The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics"

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 radical perspective on these age-old questions, with far-reaching implications. According to Beinhocker, wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify. In this view, the economy is a "complex adaptive system" in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth.

Taking readers on an entertaining journey through economic history, from the stone-age to the modern economy, Beinhocker explores how "complexity economics" provides provocative insights on issues ranging from creating adaptive organizations, to the evolutionary workings of stock markets, to new perspectives on government policies.

A landmark book that shatters conventional economic theory, The Origin of Wealth will rewire our thinking about how we came to be here—and where we are going.

From the Inside Flap
What is wealth? How is it created? How can we create more of it for the benefit of individuals, businesses, and society?

These are the fundamental questions that Eric Beinhocker asks in this groundbreaking book. According to Beinhocker, the field of economics is in the midst of a revolution that promises to overthrow a century of conventional theory and profoundly change our thinking about economic growth and innovation.

In provocative and entertaining fashion, The Origin of Wealth surveys the cutting-edge ideas of leading economists and scientists who are reshaping economics and brings their work alive for a broad audience. Beinhocker argues that the economy is a "complex adaptive system," more akin to the brain, the Internet, or an ecosystem than to the static picture presented by traditional theory.

Building on these new ideas, Beinhocker shows how wealth is created through an evolutionary process. Modern science views evolution not just as a biological phenomenon, but as a general-purpose formula for innovation. It is this evolutionary formula, acting on technologies, social institutions, and businesses, that has taken us from the Stone Age to the enormously complex $36.5 trillion global economy of today. If Adam Smith provided the inspiration for economics in the twentieth century, Charles Darwin is providing it in the twenty-first.

By understanding the evolutionary origins of wealth, we can also answer the question "How can we create more of it?" Beinhocker describes how new research is turning conventional wisdom on its head in areas ranging from business strategy and the design of organizations to the workings of stock markets and the world of politics and policy.

From Publishers Weekly
Accounting for the creation of wealth has long challenged humanity's best minds. For business readers and academics, Beinhocker is a zealous and able guide to the emerging economic paradigm shift he calls the "Complexity Economics revolution."

A fellow of the economic think tank McKinsey Global Institute, he rejects traditional economic theory, based on a physics model of closed systems, in which change is an external disruptive shock. Instead, he outlines an open, adaptive system with interlocking networks that change organically, reflecting the interaction of technological innovation, social development and business practice. Wealth is created to the degree that this interaction decreases entropy in favor of "fit order" that meets human needs, desires and preferences.

Beinhocker is sufficiently comfortable with this evolutionary model to advocate a comprehensive redesigning of institutions and society to facilitate it. He argues for corporate policies that favor many small risks over a few big ones and recommends restructuring financial theory to favor growth and endurance rather than short-term gains.

Though he asserts that complexity economics can reduce political partisanship and increase social capital, Beinhocker stops short of saying that it cures sexual dysfunction. By the end, the concept emerges as a great idea that the author tries to make a panacea.

Contents

Preface and Acknowledgments

Part I: A Paradigm Shift
 1 The Question: How Is Wealth Created?
  The Mysteries of Wealth
  Humanity's Most Complex Creation
  2.5 Million Years of Economic History in Brief
  A Tale of Two Tribes
  The Economy Evolves
  The Creation of Fit Design
  Complexity Economics
  The Road Map Ahead
 2 Traditional Economics: A World in Equilibrium
  The Need for a New Approach
  Defining Traditional Economics
  Pin Making and the Invisible Hand
  A Healthy Balance
  Dreams of a New Science
  As Predictable as Gravity
  The Panglossian Economy
  The Neoclassical Synthesis
  From Allocation to Growth
  The Legacy of Traditional Economics
 3 A Critique: Chaos and Cuban Cars
  The Clash of the Titans
  Unrealistic Assumptions
  Incredibly Smart People in Unbelievably Simple Worlds
  Time Waits for No One
  Making the Interesting Exogenous
  Keeping a Lid on Things
  Reality Test
  The "Law" of Supply and Demand
  The Law of One Price
  Equilibrium in a Few Quintillion Years
  Nonrandom Walks
  Misused Metaphors
  Half-Baked Physics
  Open Sesame
  The Misclassification of the Economy
  Beyond Walras's Cathedral

Part II: Complexity Economics
 4 The Big Picture: Sugar and Spice
  Welcome to the Sugarscape
  The Rich Get Richer
  Birds Do It, Bees Do It… and So Do Agents
  The Invisible Hand Comes to Sugarscape
  Equilibrium Lost
  The Evolution of Hierarchy
  An Economy in Silico
  Further Defining Complexity Economics
  Table 4–1: Five "Big Ideas" That Distinguish Complexity Economics from Traditional Economics
 5 Dynamics: The Delights of Disequilibrium
  Dynamics and Feedback
  The Science of "Nonpachydermology"
  The Economy Is Complex but Not Chaotic
  The Invisible Hand Sometimes Shakes
 6 Agents: Mind Games
  Spock Goes Shopping
  Cognitive Dissonance
  You Selfish Pig!
  To Err Is Human
  That Does Not Compute
  Arthur's Bar Problem
  Inductive Rationality
  Why Deep Blue Can't Tie Its Shoes
  The Mind of an Agent
  Frog Learning
  Frog Poetry?
  Stock Bots
 7 Networks: Oh What a Tangled Web We Weave
  How Networks Catch Fire
  It's a Small World
  The Value of Random Friends
  "The Network Is The Computer"
  Big Is Beautiful: Informational Scale
  Big Is Bad: Complexity Catastrophes
  Degrees of Possibility Versus Degrees of Freedom
  Two Cheers for Hierarchy!
  Boring Is Better
  The Edge of Order
 8 Emergence: The Puzzle of Patterns
  Are Business Cycles Like Wiggling Jelly?
  We're All (New) Keynesians Now
  "More Is Different"
  Oscillations: Boom and Bust in Beer World
  Punctuated Equilibrium: Are There "Keystone" Technologies?
  Power Laws: Earthquakes and Stock Markets
  Why Are Stock Markets So Volatile?
 9 Evolution: It's a Jungle Out There
  Design Without a Designer
  Artificial Life
  An Algorithm for Innovation
  The Library of LEGO
  The Setup for Evolution
  The Evolutionary Process: Child's Play
  Replicators Just Want to Replicate
  Explorations on the Fitness Landscape
  The Grand Champion Search Algorithm
  Good Tricks, Forced Moves, and Path Dependence
  Stripping Evolution Back to Its Basics
  From Evolutionary Theory to Economic Reality

Part III: How Evolution Creates Wealth
 10 Design Spaces: From Games to Economies
  The Prisoner's Dilemma
  The Tournament of Champions
  Strategies in Silico
  A Rain Forest of Bits
  The King of the Forest
  Unpredictable but Understandable
  The Library of Babel
  The Library of Smith
  A Model of Economic Evolution
 11 Physical Technology: From Stone Tools to Spacecraft
  The Dawn of Economic Man
  Physical Technology Space
  Physical Technology Readers
  Physical Technology Feeds Its Own Growth
  Technology Evolution by Deductive-Tinkering
  Selection on the Physical Technology Landscape
  Imitation Is the Sincerest Form of Flattery
  Explaining Technology S-Curves
  Disruptive Technologies
  The Scientific Revolution: Reprogramming Evolution
 12 Social Technology: From Hunter-Gatherers to Multinationals
  Let's Get Organized
  How Social Technologies Evolve
  Deductive-Tinkering in Social Technology Space
  Competing to Cooperate
   Non-Zero Magic
   Dividing the Spoils
   Cheaters (Mostly) Never Win and Winners (Mostly) Never Cheat
  From Family Units to Business Units
  Peace, Love, and Understanding
  Building Computers Out of People
 13 Economic Evolution: From Big Men to Markets
  Businesses Do the "Living and Dying"
  Units of Selection
  Strategy Glue
  Differentiation: From Entrepreneurs to Bureaucrats
  Selection: Big Men Versus Markets
  How Selection Works in Market Systems
  Replication: Amplifying Success
  Economic Evolution in a Nutshell
  In Praise of Markets—for Different Reasons
  Meta-lnnovations: Revisiting 1750
 14 A New Definition of Wealth: Fit Order
  Cranks and Half-Baked Speculators
  A Proposal: Three Conditions for Value Creation
   Irreversibility: Breaking Eggs to Make an Omelet
   Decreasing Entropy: Are Pink Cars and Bombs Value Creating?
   Fitness (Part 1): An Evolutionary View of Preferences
   Fitness (Part 2): Pushing Our Own Pleasure Buttons
  The Universal Utility Function
  Wealth Is "Fit Order"
  Did We Pass the Test?

Part IV: What It Means for Business and Society
 15 Strategy: Racing the Red Queen
  Are You Committed?
  A $270 Billion Frozen Accident
  "The Future Ain't What It Used to Be"
  The Myth of Sustainable Competitive Advantage
  Strategy Is a Red Queen Race
  Companies Don't Innovate; Markets Do
  Strategy as a Portfolio of Experiments
  Context: Creating Prepared Minds
  Differentiation: How Bushy Is Your Strategic Tree?
  Selection Pressure: Setting Aspirations
  Amplification: Swarming Like Bees
  An Adaptive Mind-Set
 16 Organization: A Society of Minds
  Social Architecture and Adaptability
  Organizations Are Complex Adaptive Systems
  Why Firms Exist
  Executing and Adapting
  Individuals: Through Rose-Colored Glasses
  Individuals: Adaptability and Loss Aversion
  Individuals: The Price of Experience
  Individuals: "Rigids" Versus "Flexibles"
  Structure: How Much Hierarchy?
  Structure: The Coevolution of Resources and Business Plans
  Culture: Rules of Behavior
  Culture: The Ten Commandments
   Performing norms
   Cooperating norms
   Innovating norms
  Culture: Inherent Tensions
  Creating an Adaptive Social Architecture
  A Society of Minds
 17 Finance: Ecosystems of Expectations
  Crashing Nobel Prizes
  Forgotten Frenchmen and Dusty Libraries
  Textbook Stock Picking
  Vegas, Churchill Downs, and Wall Street
  Cotton Prices, Fat Tails, and Fractals
  "A Non-Random Walk Down Wall Street"
  Attack of the Econophysicists
  Markets as Evolving Ecosystems
  Price Does Not Equal Value
  A New Definition of Market Efficiency
  Implications for Managers
   The Cost of Capital
   Do Stock Options Make Sense?
   What Is the Goal of a Corporation?
  Endure and Grow
 18 Politics and Policy: The End of Left Versus Right
  A Framework Past Its Time
  Human Nature and Strong Reciprocity
  Left-Wing Utopias and Free Market Fantasies
   The Critique of the Left
   The Critique of the Right
   Government as Fitness Function Shaper
  "Culture Matters"
  Social Capital and the "Great Disruption"
  Inequality, Social Mobility, and the Culture of Poverty
   Is Inequality Moral?
   A Lack of Social Mobility
   The "Culture of Poverty"
   Rawlsian Logic and Policy
   Changing Cultures and Creating a "Common Layer"
  Future Directions

Epilogue

Notes
Bibliography
Index
About the Author

Tags: qEconomics, qComplexityEconomics, qBusiness, qFinance, qInvesting, qEvolution

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