Thursday, March 28, 2024

Review of The Origin of Wealth: The Radical Remaking of Economics and What it Means for Business and Society by Eric D. Beinhocker

This book review was written by Eugene Kernes   

Book can be found in: 
Genre = Economics
Book Club Event = Book List (09/07/2024)

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“Evolution creates designs, or more appropriately, discovers designs, through a process of trial and error.  A variety of candidate designs are created and tried out in the environment; designs that are successful are retained, replicated, and built upon, while those that are unsuccessful are discarded.  Through rejection, the process creates designs that are fit for their particular purpose and environment.  If the conditions are right, competition between designs for finite resources drives the emergence of greater structure and complexity over time, as evolution builds on the successes of the past to create novel designs for the future.” – Eric D. Beinhocker, Chapter 1: The Question, Page 31

“Put simply, large organizations inherently have more attractive opportunities before them than small organizations do (the large can theoretically do everything the small can do, plus more.)  But reaching those future opportunities involves trade-offs, and the more densely connected the organizational network, the more painful those trade-offs will be.  The politics of organizations are such that local pain in particular groups or departments is often sufficient to prevent the organization from moving to a new state, even if that state is more globally fit.” – Eric D. Beinhocker, Chapter 7: Networks, Page 180

“All competitive advantage is temporary.  Some advantages last longer than others, but all sources of advantage have a finite shelf life.  While this may sound like a truism, the observation is often forgotten in the never-ending quest for “excellent” companies that build sustainable competitive advantages and allegedly outperform their industry peers year after year.” – Eric D. Beinhocker, Chapter, Page 363


Is This An Overview?

Wealth is an emergent property that evolved through people’s cooperation.  Cooperating for rewards, for mutual benefits.  Society enables synergy between people, differences within people, to create non-zero-sum outcomes.  Wealth that is enhanced by the productivity of labor, through specialization created by division of labor.  Cooperation made possible by various social technologies, which are the rules people abide by. 

Wealth is contained in knowledge, for knowledge enables people to transform resources into value.  Originating and improving through the process of evolution.  A method of competing to survive that filters out errors and enables the successful competitors to share their traits.  There is no best strategy for survival, no sustainable competitive advantage.  Any competitive advantage is temporary.  Survival itself is success.  Competition allocates finite resources, with markets being better due to their ability to innovate in disequilibrium.


How Complex Is Cooperation?

Evolutionary successful strategy of cooperation builds on past methods.  Innovate based on what was, but innovations have diminishing returns.  To keep high returns, more innovation is needed.  It might be impossible to predict the changes that evolution enabled, but societies can be designed better.

The collective has emergent properties.  Properties that do not exist within the individual.  Emergent properties such as complexity.  Enabling systems that are dynamic and nonlinear.  Systems that have self-reinforcing cycles of positive feedback, and self-regulating cycles of negative feedback. 

Cooperation can have a network effect, in which products that garner more users based on the number of users the system has.  Networks can provide a lot of value, but they can have consequences.  Networks can become too complicated.  Creating a complexity catastrophe.  When the networks grow too much, a negative change somewhere has drastic effects on various other parts.  Networks create interdependencies that have conflicting constraints, that create gridlock.  Local pain in change can prevent change in the whole system even if the change would improve the whole system.  Hierarchy can enable a better flow of information, to enable complexity along with the interdependencies.  But hierarchies have their own informational problems, such as information degrading.


How Has Economics Changed?  Or Did Not Change?  How To Simplify?

Physics was imported into economics which gave economics mathematical precision, at the cost of realism.  For some, it did not matter that the assumptions were not realistic, as long as they made correct predictions.  That the system acted ‘as if’ the assumptions were correct.  But, the purpose of science is explanations, not predictions.  The explanation and conclusion need to be tested.  Economics took ideas from physics, but while physics kept changing, economics did not.  Physics went from deterministic to dynamic and indeterminate.

Various economic ideas were wrong because economists were using science appropriately.  Assumptions are meant to simplify, but not contradict reality.  Economists used assumptions inappropriately by taking them to an extreme, that contradicted reality.  But there has been improvement, by enabling more realistic assumptions such as through the satisficing rather than making perfectly rational decisions.



Evolution is an integral concept to explain wealth, cooperation, and complexity.  Evolution is considered to provide beneficial change by error correcting problems.  The problem is that evolution does not provide only benefits, but also consequences.  Evolution can enable traits that are better for the individual at the expense of the system, at the expense of cooperative ventures.

While the author critiques various economic ideas, and referenced them as having been more static, there are also references to how the ideas have changed, improved, and were integrated within various fields.  The author provides various updated ways that economics has improved, has evolved. 

Questions to Consider while Reading the Book

•What is the raison d’etre of the book?  For what purpose did the author write the book?  Why do people read this book?
•What are some limitations of the book?
•To whom would you suggest this book?
•What is wealth?
•What are emergent properties?
•By what design? 
•How does evolution effect society?
•How was the idea of evolution effected by economics? 
•How can the use of science and evolution corrupt economic understanding? 
•Why do people cooperate?
•What are network effects?
•How does hierarchy effect information? 
•How to compete?
•How has economics changed or stayed the same?
•What did economics use from physics? 
•What ideas of Adam Smith are effective?
•What is the law of diminishing marginal utility? 
•What is the Pareto optimal equilibrium? 
•How did Neoclassical paradigm gain acceptance?  
•What kind of model is needed to understand human behavior?
•What effect did behavior economics have?
•How does change effect equilibrium economics?
•What is an evolutionary stable strategy? 
•How did physical technology evolve? 
•Why does innovation have an S-Curve? 
•What are the conditions for economic value? 
•What happened to the British East India Company? 
•What is the Red Queen race? 
•Why do firms exist? 
•What kind of culture should a company have? 
•What is the purpose of a model?  
•What kind of wealth exists?

Book Details
Alternative Title:    The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics
Edition:                   First eBook Edition
Publisher:               Harvard Business Publishing
Edition ISBN:         9781633695979
Pages to read:          494
Publication:             2017
1st Edition:              2016
Format:                    eBook 

Ratings out of 5:
Readability    4
Content          4
Overall          3