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Publish Date:
2007
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 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.
Eric D. Beinhocker is a Senior Fellow at the McKinsey Global Institute. Fortune magazine named him a Business Leader of the Next Century, and his writings on business and economics have appeared in a variety of publications, including the Financial Times.
The notion that the economy is an evolutionary system is a radical idea, especially because it directly contradicts much of the standard theory in economics developed over the past one hundred years. It is far from a new idea, however. **Evolutionary theory and economics have a long and intertwined history.**38 In fact it was an economist who helped spark one of Charles Darwin’s most important insights. In 1798, the English economist Thomas Robert Malthus published a book titled An Essay on the Principle of Population, as It Affects Future Improvements of Society, in which he portrayed the economy as a competitive struggle for survival and a constant race between population growth and humankind’s ability to improve its productivity. It was a race that, Malthus predicted, humankind would lose. Darwin read Malthus’s work and described his reaction in his autobiography:
In October 1838, that is fifteen months after I had begun my systematic enquiry, I happened to read for my amusement “Malthus on Population”, and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it once struck me that under these circumstances favorable variations would tend to be preserved and unfavorable ones to be destroyed. The result of this would be the formation of new species. Here then I had at last got a theory by which to work.39
Darwin’s great insight into the critical role of natural selection in evolution was thus inspired by economics.40 It was not long after Darwin published his Origin of Species that the intellectual currents began to flow back the other way from evolutionary theorists to economists. In 1898, the economist Thorstein Veblen wrote an article that still reads remarkably well today arguing that the economy is an evolutionary system.41 Not long afterward, Alfred Marshall, one of the founders of modern economic theory, wrote in the introduction to his famous Principles of Economics, “The Mecca of the economist lies in economic biology.”42 Over the following decades, a number of great economists, including Joseph Schumpeter and Friedrich Hayek, delved into the relationship between economics and evolutionary theory.43 In 1982, Richard Nelson and Sidney Winter published a landmark book titled An Evolutionary Theory of Economic Change. It was the first major attempt to marry evolutionary theory, economics, and the then recently developed tool of computer simulation.44
Economic wealth and biological wealth are thermodynamically the same sort of phenomena, and not just metaphorically. Both are systems of locally low entropy, patterns of order that evolved over time under the constraint of fitness functions. Both are forms of fit order. And the fitness function of the economy - our tastes and preferences - is fundamentally linked to the fitness function of the biological world - the replication of genes. The economy is ultimately a genetic replication strategy.
Each invention opens up new niches for future inventions, and components from one invention are often recycled into new forms. As discussed earlier in the book, some inventions, such as the automobile, set off major avalanches of change, and some set off only small avalanches (the size of which Kauffman believes follow a power law). Nevertheless, **all inventions have ripple effects, no matter how small.**11