This is embarrassing to admit but it is only after 10 months that I was able to set my eyes on the last page of Eric D. Beinhocker’s Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics. The book is one of those literatures that add new perspectives and challenge pre-existing worldview. That, the slightly technical arguments as the author works toward the punch line — hence, slightly dry — and my typical busy-and-lazy excuse are the reasons why I took so much time. In fact, amid Origin of Wealth, I took a pause and began reading Paul Michel Munoz’s excellent Early Kingdoms of the Indonesian Archipelago and the Malay Peninsula. But I am done with Origin of Wealth now. While Mr. Beinhocker’s work is enlightening, I am not quite convinced of the extent of a revolution inside economics, as suggested by the author.
In the book, the author asserts that the field of economics is rapidly looking up to biology, disfavoring physics. Specifically, it calls for a migration from the idea of equilibrium in physics to the biological concept of evolution. This is not the first time such idea has been conveyed. While this is the first time I am exposed to the idea, the wanting to switch track has been out there in public consciousness for at least a decade. It perhaps popularly cumulated to Paul Krugman’s The Power of Biobabble which harshly criticizes “bionomics” as pseudoscience. In the Origin of Wealth, instead of bionomics, Mr. Beinhocker referred to it as complexity economics.
The book starts with an overview of economic history, started from Leon Walras. While Adam Smith popularized the idea of free market, it was Walras, as one of few pioneers of marginalism movement that later led to neoclassical school within economics, whom introduced rigorous mathematics into economics; economics is science because of Walras, and a few fellow early marginalist economists. More importantly, it was Walras that placed economics as parallel to physics with his idea of equilibrium.
From then on, the author starts to criticize mainstream economics, which he refers to as traditional economics; the concepts of equilibrium and homo economicus are his favorite punching bags. He explains how in the real world, mainstream economics fails to describe various phenomena due to its reliance on the ideas of equilibrium and complete rationality.
One criticism that rings in my head even before I picked up the book is the static-dynamic dichotomy. Mainstream models are notorious for its assumptions of static to explain the dynamic real world and the author derides the mainstream for unrealistic assumption. While it is true that mainstream models are static, I do not see how his alternative could replace what he attacks. While I may not be deeply educated in economics as I would like to be, my reading tells me that many of Mr. Beinhocker’s points are being addressed in economics. The author cites a number of economists working seemingly working to dismantle mainstream economics. In truth, those cited, as least the more well-known figures are the ones that are widening and improving our understanding of economics.
He further describes how typical mainstream economics models are simplistic in nature. But models are supposed to simplify the real world, while eliminating irrelevant noise. If one wishes for it to be as complex as the real world, the only model would be the real world and that would be utterly hard, if not unhelpful. Besides, the models are static for comparison purposes. It is static to aid decision making. One would have a hard time comparing dynamics.
Still, those two criticisms are valid.
What I disagree most with his book is the alternative that he offers: a move to complexity economics. The alternative is not convincing at all and it involves a mish-mash of various findings that criticizes the ideas of static models and perfect rationality. There is no concrete “new economics” to migrate to. At best, the new economics might be what Krugman had described a decade ago: biobabble, pseudoscience. Mr. Beinhocker might realize the lack of concrete alternative to mainstream, or rather traditional, economics when he said complexity economics is still evolving and it is hard to see where the movement is going.
Still, there are interesting and enticing points presented in the book. What I like most are the experimental model on inequality and the importance of trust in economic development. This resonates well especially when the question of Malaysian judiciary credibility was first raised recently. Then again, trust is the message put forward by a branch of mainstream economics called game theory. Therefore, it is nothing new. On inequality, it tries to argue that deterministic factors do affect wealth; that I agree. Further, the author writes that the development path is dependent on culture and not on just endogenous trends and factors coupled with exogenous shocks like technological progress. This may violate the idea of political correctness but here, I am in the opinion that political correctness comes second in search for truth.
In all in, Origin of Wealth is a good read through I would advise reading the book in front of a tablespoon of salt and frequent independent reference to the current state of economics. Mainstream economics may have its weaknesses but complexity economics as forwarded by Mr. Beinhocker does not quite offer a solution to that weaknesses. Mainstream and other heterodox economics do a better job in making economics as a whole worth our effort.
If there is at all any serious effort to dump mainstream economics in favor of complexity economics, I would certainly prefer to wait for a proper definition of the latter to be understood first. At the moment, to me, complexity economics is what bionomics is to Krugman.