The Economy as a Complex Adaptive System A Review of Eric D. Beinhocker, The Origins of Wealth: Evolution, Complexity, and the Radical Remaking of Economics

In this broad-ranging book, Eric Beinhocker defends a vision of the economy as a complex adaptive system. The theory that explains the operation of the economic system he calls Complexity Economics. The Origin of Wealth is a frontal attack on Neoclassical economic theory. Beinhocker recognizes the successes of this theory, but locates them in the past. The combined aridity of classical game theory, in which there have been no new insights for almost twenty years, and general equilibrium theory, which has produced nothing of general interest since the consolidation of existence theorems in the 1950’s, accounts for the current eclipse in the status of pure theory in the eyes of many contemporary economists. For such-minded individuals, Beinhocker has a message. “Economics can do better,” he says, “it’s time to move on.” (p. 23) Some will dismiss this book out of hand because Beinhocker does not provide a workable analytical alternative to the Neoclassical model. He should not be dismissed, since the market economy is, in fact, a complex adaptive system, a fact that materially alters the analytical tools best deployed to model economic behavior. Indeed, some of the appropriate tools remain to be invented. From its characterization as a complex adaptive system, it follows that the market economy follows an evolutionary dynamic. It is well known in evolutionary biology that one can treat genetic and cultural evolution using the same analytical tools (including the same set of differential equations, the so-called replicator equations), ∗Santa Fe Institute and Central European University. I would like to thank Samuel Bowles and Doyne Farmer for helpful comments, and the John D. and Catherine T. MacArthur Foundation for financial support.