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 meticulously he constructs each argument, sometimes building the foundation for several long chapters before laying out a conclusion. A very carefully written and edifying book.

While reading i was eager to apply the ideas to my own life. How do i manage my own evolution? Do i have an optimal portfolio of experiments as well as exploit the familiar turf for sustenance? How can i explain the bitterness inducing blotches on the processes at my job? What role can i play in the development of culture around me? Why is our government the way it is?

Things are not set in stone and are not evolving towards a predetermined perfect equilibrium state. We are all in a car, endlessly moving, wheeling our way around pitfalls, reacting, learning and we each get to turn the wheel a tiny bit. ( )

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. ( )

The text says that the graph of y= x squared is a geometric curve. An editor inserted this absurdity, or they failed to remove it. Either way I think we should boycott this publisher. ( )

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! ( )

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. ( )