Book can be found here https://amzn.to/34BqxdD and its summary is below:
Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? In The Origin of Wealth, Eric D. Beinhocker argues that modern science provides a radical perspective on these age-old questions, with far-reaching implications. According to Beinhocker, wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify. In this view, the economy is a “complex adaptive system” in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth. Taking readers on an entertaining journey through economic history, from the Stone Age to modern economy, Beinhocker explores how “complexity economics” provides provocative insights on issues ranging from creating adaptive organizations to the evolutionary workings of stock markets to new perspectives on government policies. A landmark book that shatters conventional economic theory, The Origin of Wealth will rewire our thinking about how we came to be here–and where we are going.
KEY SENTENCES AND IDEAS:
‘Anybody looking at these models would say they can’t provide a good description of the modern world’ – Joseph Stiglitz, a former chairman of the U.S. President’s Council of Economic Advisors, chief economist at the World Bank, and a Nobel Prize winner.
One of Samuelson’s key breakthroughs was solving a problem that had bedeviled economists since the days of Bentham. Utility had become a core part of economic theory, yet it was still a mysterious, unobservable, unmeasurable quantity.
#Solow wanted to account for innovation in a way that would be consistentwith Neoclassical theory and maintain equilibrium in the economy or productivity is what he created, and how It improves peoples lives)
#Unlike Schumpeter, who saw innovation as a disruptive disequilibrium force, Solow wanted to account for innovation in a way that would be consistent. With Neoclassical theory and maintain equilibrium in the economy or productivity is what he created, and how It improves peoples lives)
#Pareto and Hicks had already debunked the idea that a “util” was a fixed unit of measure (like a kilogram or a watt) and argued that utility only had meaning in a relative fashion, as in “to me that apple has twice as many utils as it does relative to an orange.” But that still begged the question of how one measured even relative utility. Samuelson’s reply was that one didn’t have to look inside people’s heads and measure utility directly; rather, people would reveal their preferences through the choices they made. All one had to do was assume that people are logical and consistent in their behaviors.
# TYPE OF ASSUMPTIONS CLASSICAL ECONOMISTS MAKE
• There are no transaction costs (e.g., no fees, taxes, legal restrictions, or
other costs or barriers to buying and selling)
• All products are pure commodities sold only on price (e.g., no brands
or differences in product quality)
• Companies are always working as efficiently as possible
• Consumers can purchase insurance for any possible eventuality
• Economic decision makers only interact with each other through
price, usually through an auction mechanism (when was the last time
your supermarket held an auction?) p 52
engage in what Herbert Simon called satisficing, whereby one looks for a
result that is “good enough” rather than the absolute best. For example, Traditional
Economics would assume that the moment you need gas for your
car, you drive to every gas station in your area in search for the one with the lowest price. Simon, on the other hand, would argue that you simply have a rough idea of what gas costs and pull into the nearest station that appears to have a reasonable price.
#Correspondence principle. According to the correspondence principle, a new theory should reproduce the successes of the old theory, explain the failures of the old theory, and offer new insights that the old theory does not.
#In Isaac Asimov’s classic science fiction trilogy Foundation, scientists in the far future invent a new field called psychohistory, with which they are able to
reduce the behavior of individual humans down to mathematical equations, enabling them to make precise predictions about the future course of history. Psychohistory sounds like an economist’s ultimate fantasy
#In 1957, for example, General Electric invented the quartz halogen lamp. The technology eventually became cheap enough in the 1980s that halogen lighting
became a popular consumer item. Halogen lights were an important improvement
over standard incandescent bulbs, but nonetheless, one cannot say
they have had a dramatic impact on society.
#Let’s call them Harry and Larry, must have sat down next to each other and one of them, let’s say Harry, grunted and used body language, to
ask his colleague, “So, do you want a piece of meat for that ax?”2 Perhaps
Harry had had a lucky day hunting and had some extra meat lying around,
and perhaps he wasn’t very good at making axes or just didn’t like doing it.
And perhaps Larry, who found ax making easy and fun, was hungry after an unlucky day hunting. Larry grunted, “Yeah, sure,” they traded, and the economy was born
#Stuart Kauffman has noted that the invention of the internal combustion engine led to the invention of the automobile, which led to the invention of inflatable rubber tires, windshield wipers, asphalt paving, roadside motels, fast food, toll booths, and drive-through wedding chapels in Las Vegas.
# controlling and owning are the differences between an entrepreneur and a capitalist, a entrepreneur both owns and controls, a capitalist only owns but doesnt control
# Cantillon (an economist) believed that value was a function of how much scarce land was used in making a product, Marx saw
labor as the ultimate source of value, and Ricardo added that capital was
essential as well. With Jevons and the Marginalists, the theory of value swung
over to the demand side, as they argued that value was determined by people’s
relative utilities for goods. In the Neoclassical synthesis, the two sides
were fused: scarce factors of production met individual preferences through
the mechanism of markets, and value was simply whatever two people were
willing to trade for
# “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” John Maynard Keynes