Eric D. Beinhocker, "The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics"
Harvard Business School Press | 2006 | ISBN: 157851777X | 543 pages | siPDF | 11.2 MB
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.
|“||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
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
Incredibly Smart People in Unbelievably Simple Worlds
Time Waits for No One
Making the Interesting Exogenous
Keeping a Lid on Things
The "Law" of Supply and Demand
The Law of One Price
Equilibrium in a Few Quintillion Years
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
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
You Selfish Pig!
To Err Is Human
That Does Not Compute
Arthur's Bar Problem
Why Deep Blue Can't Tie Its Shoes
The Mind of an Agent
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
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
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
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
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
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
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"
About the Author
Tags: qEconomics, qComplexityEconomics, qBusiness, qFinance, qInvesting, qEvolution
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