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.

Economics is an area much in need of new ideas. Here are a bunch.

Most books on "rethinking economics" are written by cranks and charlatans with an agenda (or a product) to sell. This is a shining exception.

Economics is one of the fields grappling with new paradigms introduced by complexity theorists. Origin of Wealth is an attempt by the author, a McKinsey guy, to put this into a framework and draw lessons that organizations may apply today. As such, it enunciates theory as a basis for practical applications. This is a very well-written book, pitched just about right for the general reader with an interest in business and complexity theory. This is a very dynamic field which for the past 50 years or so has continued to grow and increase its utility. Origin of Wealth is an honest and successful attempt to make these ideas available to those of us who can use them in our own enterprises. Read this one.

One of the best books I've ever read.
For me, it brought a lot of disparate observations into focus and provided a plausable and nearly universal expanitory model; e.g., evolution, self-organization & entropy, management in a high risk research environment, funding basic research, portfolio approach to project selection and management, top-down vs. bottom up initiatives, strategic vs. opportunistic approach to growth, philosophy of governance and its execution, etc., etc. etc.
My only negative was the early denigration of the so-called "standard" approach to economics, whch I always considered to be an evolutionary process, just like in any scientific endeavor; i.e., a work in progress in which there is a continuous flow of new data, which evokes an on-going stream of new insights, which are then integrated into its knowledge base.

It's called "The Origin of Wealth", and is subtitled "The Radical Remaking of Economics and What it Means for Business and Society". But if Eric Beinhocker could have another shot at it, he might call his manifesto, "The Origin of Everything" and subtitled it, "Including the Kitchen Sink". He has a case, as few others have had, at claiming this honor. His broad effort combines complexity theory and advanced adaptive systems with the latest thinking on biological and evolutionary science to give Beinhocker a business book for use not only by the titan's of industry but for anyone else who participates in our economy. Meaning you don't have to be studying computational economics or be enrolled in business school to read, understand, and learn from this book.

Very few people, Henry David Thoreau and Ted Kosinski , come to mind, are not active in the evolutionary gene pool that is the global marketplace for the creation of wealth, and thus will not gain wealth from this book. And wealth, according to Beinhhocker is the creation of "Fit Order". You will have to read the book to understand what he means by "Fit Order" but his type of wealth is not about dollars. Don't read his book to become rich, read his book to keep from becoming poor.

Even if you do not buy-in to his theory, you will get a first class treatment of economic systems, traditional economic theory, complexity, non-linear systems, game theory, advanced adaptive systems, networks, evolutionary theory with it's fundamental aspects of emergence and selection, along with the necessary aspects of business strategy development, finance, and ultimately politics. Toss in a little thermodynamics and stir.

Does Beinhocker have it right? Unlike biological evolution, it's impossible to prove scientifically that our economy evolves in a similar fashion, but he has made the necessary case. What he has clearly proven is that traditional economic theory is dead, the economy is far more dynamic and unpredictable to believe in assumptions about rational markets and equilibrium states. In order for markets to emerge, adapt, and evolve, in the biological sense, they have to be alive. We see similar emergent behaviour that certainly suggests that markets are alive because commercial entities are born, live, and die within it's boundaries.

Although he doesn't explicitly state it, if it's evolution that drives the markets, it has to be biologically based just as certainly as our DNA has created a life support system that has arms and legs and systems that bring air and food to our cells. It has therefore created other systems to ensure there is an abundance of everything else we need to survive. These systems are now detached from our physical bodies but are still driven by the same rules embedded in our DNA. The same rules that are now screaming at society to protect the air that we breath and all of the natural resouces we need for survival. So the next time you are holding a glass to get a drink of water, you might ask, did the same forces of nature that brought you an opposable thumb, also bring you indoor plumbing and the kitchen sink? Beinhocker would say yes. Add this book to your environmental reading list as well, Darwin is calling.