The Origin of Wealth: The Radical Remaking of Economics and What It Means for Business and Society. book. Eric D. Beinhocker. Save; Share. The Origin of Wealth. Evolution, Complexity, and the Radical Remaking of Economics. Eric D. Beinhocker. Guo BAI – Mars Majeure Alternative . A review of Eric Beinhocker’s book The Origin of Wealth. Exploring new economic models for evolutionary biology beyond Darwin’s use.
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The Origin of Wealth played a special role in my intellectual development. Ernst Strungmann Forums follow a distinctive format that brings over 40 experts together for a five-day period. There are no formal talks; instead, the participants are divided into four groups wealt discuss articles written in advance, with lots of cross-fertilization between groups. The experience is much more impactful for the participants than the average scientific conference and the results are published in an academic volume by MIT Press.
Eric was a member of the Forum organizing committee, but irigin a skiing accident prevented him from attending the conference.
The Origin of Wealth
The loss was felt by all, but the show went on and the MIT Press volume has just appeared in print. The 10 th anniversary of his book and the publication of the MIT Press volume makes it a fitting time to touch base with Eric on the past, present, and future of economic theory. Thanks for the very kind introduction David, a pleasure to be speaking virtually with you!
My father instilled a great interest in science in me, particularly physics, evolutionary theory, and computation. However, in an act walth teenage rebellion, I decided to study economics at Dartmouth rather than science. But one of the great benefits of a liberal arts education is I could still continue to take courses in science while I was studying economics. Two particularly influential courses were one on artificial intelligence, where I learned how real human intelligence and AI systems trying to imitate brinhocker were profoundly different from the rational models of wwealth econ courses, and system dynamics taught by the late Barry Richmond where I learned that non-linear dynamical systems behaved nothing like the equilibrium models I was studying in econ.
Both of these courses left me with profound cognitive dissonance — the theories I was learning in economics seemed to have little to do with the real world, while the ideas I was learning in these courses seemed much more descriptive of how a system like the economy worked.
Veinhocker after graduating, I decided to work in business at McKinsey rather than academia beinohcker well as pay back lots of student loans! McKinsey then generously allowed me to have a sabbatical at SFI, which is where I did most of the research for the book.
To wea,th extent there was criticism it was generally fair e. Then of course the crisis hit and things began to really shift.
The Origin of Wealth by Eric D. Beinhocker
There are many schools of thought, but one maintains a position of dominance. Can you explain this intellectual and social dynamic for a broad audience? The rise and dominance of neoclassical theory and its political cousin neoliberalism is a fascinating bit of intellectual history. I owe a great debt to Phil Mirowski for opening my eyes to it. His book More Heat than Light was a major source for the history chapter in my book and he kindly let sealth interview him during my research.
My cartoonish summary would be that a group of very clever people in the late 19 th century Walras, Origun, Menger, Pareto wanted for very legitimate reasons to introduce mathematics and rigor into economics. But the tools they had at the time — primarily static equilibrium methods — were simply the wrong tools for the job. But as the neoclassical models became more elaborate they also became more detached from reality, and unfortunately the profession began to reward mathematical virtuosity more than empirical validity.
Thus by the late 20 th century academia was dominated by neoclassical economics, and oriyin and policy at least in the U. But as I orugin in my bookthe whole edifice was built on sand.
The cracks had been forming for some time, but inshortly after my book was published, the edifice really began to crumble. So while this may all sound like abstract, intellectual stuff, it really matters in the real world! Your account makes me want to develop our conversation in two directions. The first direction is scholarly: The second direction is political and ideological. Why is political discourse about economic issues so disconnected from academic discourse?
Any scholar will tell you that neoliberal discourse invokes major figures such as Adam Smith and Friedrich Hayek in ways that bear almost no relationship to their actual work. And figures such as Donald Trump might capitalize on the fact that things are falling apart, but they will be among the last to embrace or even notice scholarly attempts to provide a more solid foundation based on complexity and evolution!
First, in order to put economics on a sounder footing, we need to strip it right back to its intellectual foundations and build back up from there. At the foundation is an ontological question: In my book I make a detailed argument as to why the answer is that the economy is a complex and evolutionary system. From my more orivin work, particularly inspired by my interactions with the investor and philanthropist Wealhh Soros disclosure: Our ideas about the economy affect the economic world e.
There is a Journal of Economic Methodology special issue on reflexivity and a paper where I attempt to draw a link between complexity, evolution, and reflexivity.
If one accepts this ontological position, that the economy is complex, evolutionary, and reflexive, then one can start building a set of theories and models to describe it in those terms, and test those models empirically. So the key challenge is whether we can use these new tools and ideas to describe the economy as it really is — a glorious mess of real human behavior, social networks, cultures, institutions, politics, and innovation — rather than the sterile idealized account of neoclassical theory.
We know from economic history that the economy is an incredibly dynamic system, from the explosion of growth unleashed by the industrial revolution, to the booms and busts of financial crises, to the co-evolution of technologies and institutions.
A key test then is whether a complex, evolutionary, reflexive view can do better. This then leads to your second question. If we have better explanations of how the economy works positive economics in the jargon then we can develop new ideas on how we can make it work better normative economics.
I ended the Origin of Wealth with a chapter on this, but always felt it was unsatisfactory and incomplete. In crude terms we can have growth or fairness, but not both. We believe this is a false choice and neither is a good description of either how economies actually work, nor how they should work. Instead, we draw on a variety of new economics work as well as work from anthropology and psychology to develop a view of the economy as an evolutionary system of cooperative problem solving including drawing on your important work on altruism.
In our view the purpose of capitalism is not allocative efficiency as often argued in neoclassical economics but rather is an institutional system for incentivising and rewarding cooperative problem solving, and evolving new and better forms of cooperation and solutions.
We outlined this view in a piece in Democracy in We think this way of describing the economy has big policy and political implications because if you buy this story, then economic inclusion becomes central to how capitalism works. Including people in networks of innovators, workers, and consumers is an essential ingredient for growth, not just something you do for social justice reasons through redistribution afterwards.
Inclusion does not imply equality of outcomes, which is neither possible nor necessarily desirable. But it does imply fairness of process, which the psychology literature tells us is what people actually care about — inclusion means that everyone participates in and contributes to the economy, and everyone benefits in a fair way.
It is a concept more related to the ethics of Rawls or Sen than to neoclassical utilitarianism. Where this line of argument ultimately leads is that our debates about growth versus fairness, about big versus small government, and trickle-down versus redistribution, are the wrong debates.
What we should be debating are the best ways to give people the capabilities a Sen concept to be included in the economy and then how to include them. There is also a strong reflexive relationship between an inclusive economy and an inclusive democracy. There has been a lot of progress since the Origin of Wealth was published.
The Radical Remaking of Economics – Evonomics
Notably the financial crisis shredded whatever credibility neoclassical macro had left and created space for new models and approaches. The major central banks have been surprisingly open to complexity inspired approaches and taken an interest in agent-based modelling, network theory and other tools. We were part of an EC funded project called CRISIS that worked on new approaches to understanding origi interactions and had very productive interactions with policymakers and central banks.
My colleague Doyne Farmer has continued that work, generating some important results and collaborating with the Bank of England. Two areas where there is much potential are economic inequality and the economics of climate change. Inequality is about understanding the evolution of distributions and the agent-level processes that create them — natural topics for a complexity approach.
Solving climate change requires economic krigin on the scale of the industrial revolution — wralth phenomenon that as I discussed in my book neoclassical models cannot explain. Thus I worry that the neoclassically derived models that dominate the field — and the policy recommendations that come from them — may be leading us down the wrong path. I also believe that a complexity economics approach could yield new insights into how to rapidly transform the system, how to trigger a new clean energy industrial revolution.
One barrier to creating a new foundation for economics is that the integration of complexity theory and evolutionary theory o still a work in progress. This is something that I have long known and was evident during the Ernst Strungmann Forum. What are your thoughts on the current level of integration between these two bodies of theory? Which is why I very enthusiastically supported your efforts on the Strungmann Forum and was very sorry to miss it due to my skiing mishap.
But they describe their respective parts of the elephant from different frames, from different disciplinary backgrounds, and with different mathematical and modelling tools.
The terminology also makes it a bit confusing: Ecologies fall into the latter category with both biological evolution and adaptive behavior at work. Social systems, including economies, also fall into the latter category with both cultural evolution and adaptive behavior at work. Wilson argues that this is now the dominant force on our planet, titling one of his books The Social Conquest of Earth.
But the Strungmann Forum was an important step in that direction and I hope there will be much more work to achieve consilience another Wilson term amongst these powerful ideas.
In chemistry, a catalyst is a substance that increases the rate of wea,th chemical reaction, sometimes by orders of magnitude, without being used up in the process. Positive change that otherwise might require decades or might not happen at all can be accomplished in years, but only if we know what to do.
The progress that has been made since the publication of your book is too slow. Depending on the day of the week I either think things are moving quite quickly or painfully slowly. Policymakers are providing a major pulling force for new thinking. The crisis was a big wake-up call about the pathologies in standard economics and problems like inequality and climate change demand new approaches.
On the other side, students are providing an important pushing force, welath curricula that paint abstract imaginary worlds and tell them little about the problems that will shape their future. This has led to some promising efforts on curriculum reform see for example CORE. And in academia, there is actually a lot of very exciting economics being done — but much of it weqlth being done outside of traditional economics departments, in psychology departments, business schools, public policy schools, computer science departments, environmental sciences, geography, sociology, history, anthropology, physics, and lots of other places dealing with complex human social phenomena.
And within economics departments you often find a spectrum — from very open-minded people pushing the boundaries to others who are stuck in the neoclassical box and will never leave it.
And Evonomics has provided a terrific outlet for bringing new economic thinking to a broad audience. In my mind one of the biggest barriers to this shift is the academic journals. It is ironic that new economics work can get published in top science orkgin like Science and Naturebut struggles to get into the big name economics journals.
We have some pretty jaw-dropping rejection letters, e. One can dismiss all this as squabbling academics. But it really matters.
Humanity is in a race between the challenges we face — from populist threats to democracy and open societies, to poverty in the developing world, to climate change, to terrorism and conflict — and our ability to understand the complex societies we have created.
It is a race that we have to win.