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The Origin of Wealth

The Radical Remaking of Economics and What It Means for Business And Society

By Eric D. Beinhocker
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The Origin of Wealth by Eric D. Beinhocker

The Origin of Wealth shows us the inadequacies of the economic theories that underpin our understanding of economics. The book argues that economic actors shouldn’t be seen as rational consumers that act on their self-interest. Rather, economics is best understood as a complex system of adaptation, similar to evolution, where products, ideas, and ideology compete for survival.

Key idea 1 of 8

Traditional economic theories are unrealistic and inadequate.

If you’ve been paying even the slightest attention to the news in recent years then you’ve surely noticed the many economic shocks and crises throughout the world. In an attempt to manage these difficulties, politicians, economists and the media all advocate the traditional economic approach.

This approach is focused on two things:

First, they claim that when you leave the economy to its own devices, it will eventually “correct itself” by finding an equilibrium point at which it once again operates smoothly. If the economy is shocked from the outside – for instance through new government regulation or planning – then it will enter a state of fluctuation before finding a new point of equilibrium.

Think about it like this: If you drop a ball into a bowl, it will bounce and roll around before eventually coming to a comfortable rest. As long as no one shakes the bowl, it will remain peaceful.

Second, traditional economics assumes that humans always act rationally based on their own self-interest. This assumption, however, rests on another: that we don’t make any mistakes when participating in the economy, but instead carefully scrutinize each economic action – from buying a house to opening a savings account – before making the best possible decision.

While this traditional economic approach remains popular with governments and academics, it doesn’t reflect the real world.

For instance, it falsely assumes that all changes and shocks to the economy come from the outside, without recognizing that economic changes are actually driven from within the system itself.

In addition, the traditional approach is also completely undermined by the fact that people are not perfectly rational, self-centred creatures. We make mistakes, act on impulse and sometimes put our own desires on the back burner in order to satisfy someone else’s needs.

Clearly, the old approach is insufficient. In its place, we need a new method – one that can actually make sense of the complexities of our economic lives.

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