Tuesday, February 24, 2009

On The Origin of Wealth

After a brief hiatus I have started reading this book again. Everything Taleb has written, sans the epistemic philosophy and general snark, can be seen as a subset of this book.

As I read Beinhocker is discussing how the observation that businesses evolve in the marketplace can be applied to practical strategy. He makes the point that for the most part conventional strategy and long-term planning is futile in the face of the complex non-linearities of the marketplace.

Beinhocker grounds his descriptions of economic activity in modern physics itself, rather than attempting to ape physics as many early economists (like Jevons and Walras) did.

Beinhocker defines wealth as useful order. And order is information, and useful information is knowledge. So knowledge is wealth.

Beinhocker says that value is created by:

• Irreversible actions
• Local reductions of entropy and
• Fitness

Fitness is determined by an evolutionary process, the free market, which can be thought of as a knowledge-generating machine.

Beinhocker advocates ideas similar to Alex Harrowell of the Yorkshire Ranter (who I suspect is familiar with the book), stating that we need to build institutions that evolve more effectively.

This sentiment runs counter to many traditional conceptions of Big Man, top down, authoritarianism. Politicians are praised for ignoring evidence and not adapting to circumstances.

The scientific method and free markets work so well because they lead to the creation of a large number of ideas and then subject each idea to testing, selecting the most successful ones, replicating and recombining these successful ideas, then repeating the whole process continuously.

The outcome is a an increase in knowledge, and hence wealth.

No comments: