The Origin of Wealth

Beinhocker argues that the neoclassical model of the economy, built on equilibrium, rational agents and perfect information, is wrong in its foundations, and that the economy should be modelled as a complex adaptive system that evolves. He traces the intellectual history of how nineteenth-century economists imported equilibrium mathematics from physics, and then presents the alternative developed at the Santa Fe Institute and elsewhere.

The substantive argument is that wealth is created by an evolutionary search process operating on three things simultaneously: physical technologies, social technologies meaning ways of organising people, and business plans that combine the two. Selection happens in markets. He uses agent-based modelling results, including Brian Arthur's work on increasing returns and the El Farol problem, Kauffman's work on fitness and adaptive search, and experimental economics, to argue that the economy has no equilibrium and that the distribution of outcomes is power-law rather than normal.

The implications he draws are for strategy and policy. He argues that firms should run portfolios of strategic experiments rather than commit to a single predicted future, that adaptation beats prediction, and that markets are valuable primarily as evolutionary search mechanisms rather than as allocative optimisers. The book is long, synthesising rather than original, and it is a good entry point to complexity economics. Critics note that complexity economics has produced far more critique of the standard model than replacement for it, and that agent-based models are difficult to validate empirically. Twenty years on, the promised paradigm shift in economics has not happened.