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Keywords: Economics, complexity theory, complex adaptive systems, evolution

Title: The Origin Of Wealth

Author: Eric Beinhocker

Publisher: Random House

ISBN: 0712676589

 

As with a number of the social sciences economics has often suffered something of an inferiority complex about not being a 'proper' science. In a bid to make the subject more of a hard science, the messiness of the real world has been subject to a number of simplifying assumptions and abstractions. A key assumption is that an open economy is essentially in equilibrium - supply matches demand - and that disturbances to that equilibrium flatten out over time. This is the central underlying paradigm of modern economic theory, and it is, according to Eric Beinhocker, simply wrong.

The idea of economic equilibrium was derived from an attempt to apply early ideas from the physics of thermodynamics to economics. It was in part a response to an inferiority complex that seems to afflict many of the social science. In a bid for scientific respectability ideas from the physical sciences are misapplied to the complex, messy and inherently chaotic worlds of human behaviour. However, it's to physics and computer science that some economists are now looking for new ideas and concepts to help model economies as they are rather than as economists would like them to be.

In particular it is the field of complexity theory that brings together physicists, computer scientists, evolutionary theorists and economists. The result is a new discipline that has become known as 'complexity economics'. Beinhocker's book does a masterful job of bringing this radical rethinking of economic theory to public notice.

Rather than simply launch into a discussion of the complexity theory, Beinhocker opens with a survey of traditional economics. Part one of the book looks at the history of economic thought, from the earliest days to the classical ideas of Adam Smith and David Ricardo on through to the modern. It's a quick survey, teasing out the key ideas while moving towards a point where he offers a critique and points out the contrasts between the theories and reality.

This all leads naturally to part two of the book, which introduces the central ideas of complexity economics. Readers of previous books on complexity theory, such as Mitchell Waldrop's excellent 'Complexity' or Steven Johnson's 'Emergence', will find much that is familiar, though with focus an obvious focus on economics rather than physics or computer science. For readers new to complexity theory, Beinhocker does an excellent job of introducing the key concepts: evolution, agents, emergence. At heart this new approach - a paradigm shift if there ever was one - models an economy as a complex adaptive system. In particular evolutionary theory plays a central role - it is the big idea that drives all else. However, where most people think of evolution in terms of biological processes complexity theory views it as an algorithm (a step-by-step process) that can be applied to many different contexts - biological, social and economic.

Having presented the core concepts of complexity economics the book then moves on to look at how these ideas can answer one of the questions that traditional economics cannot answer: how is wealth created?

The final section of the book looks at what the paradigm shift that is complexity economics means to worlds of business and politics. Of course there are bound to be policy implications to this changed view of the world, and Beinhocker draws some of these out, both in terms of corporate strategies but also in terms of left/right politics. In contrast to the earlier sections of the book these chapters are more speculative, more tentative. However his conclusions are interesting and if they trigger discussion it's all to the good.

Beinhocker writes with passion about his subject, engaging the reader at all times as he surveys a field that is still growing and maturing. And there are plenty of references for the interested reader to follow up on.

Above all else, this is an important and fascinating subject and the book is a pleasure to read.

Contents © London Book Review 2006. Published August 23 2006