ceteris paribus...
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Eric Beinhocker's book, The Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics, published last year explains to us 'why we are where we are today' in terms of evolutionary economics. He shows how the world has evolved to be what we have now through the complexity of the modern economy. He states "Yet no one designed it and no one runs it". This idea of the power of market forces is one that the late Milton Friedman emphasises particularly in his TV series and book, Free To Choose. His famous example being that not a single person in the world knows how to make a pencil from the logging of the wood to the mining of the metal and rubber on top. Only the hugely complex free market can do this - there is no central direction where people make certain orders in order for this pencil to be made. In the same way, Beinhocker shows how the economy has evolved in a similar way to biological evolution. However, conventional economics cannot go far in explaining this evolutionary process which has taken 2.5 million years (of which most of the devlopment has happened in the last 250 years). Whereas textbook economics assumes that humans are rational, consistent beings, humans are prone to misjudgements and mistakes. This evolutionary history, which Beinhocker explains has equipped humans to survive in the rapidly changing world. Much of this evolutionary process depends on the use of finite resources and human success in doing so has led to a great increase in wealth and standard of living throughout the world including a huge increase in world population. Beinhockers explains the evolutionary world in three ways: firstly through physical technology which has enabled the the scientific and industrial revolutions, secondly, the evolution of social technologies such as money, democracy and markets and thirdly, the evolution of businesses. The importance of markets in this evolutionary process is paramount as they act as "innovation machines" because of the power they have in effectiveness at innovation in disequilibrium. Links:
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