Eric Beinhocker
Encyclopedia
Eric D. Beinhocker is the author of The Origin of Wealth and a senior advisor to McKinsey & Company, Inc.
, where he conducts research on economics, management, and public policy issues. He was previously a partner at McKinsey and a coleader of its global strategy practice. His career has bridged both the business and academic worlds. He has been a software CEO, a venture capitalist, and an Executive Director of the Corporate Executive Board. He has also held research appointments at the Harvard Business School
and the MIT Sloan School of Management
, and has been a visiting scholar at the Santa Fe Institute
. He is a graduate of Dartmouth College
and the MIT Sloan School of Management
where he was a Henry Ford II Scholar.
Fortune
magazine has named Beinhocker a "Business Leader of the Next Century," and his writings on business and economics have appeared in a variety of publications, including the Financial Times
.
Originally from Boston
, Massachusetts, he lives in London
with his second wife Tilly Franklin, a venture capitalist at Apax Partners
and their daughter Anna. His first marriage was to Ruth Anna Davidon, an Olympic rower.
ary theory, to physics
, biology
, computer science
, and cognitive science
are fundamentally changing the way economists view the workings of the economy. For the past century, economists have viewed the economy as an equilibrium
system made up of perfectly rational
agents
with access to full information, who produce and consume goods and services in economies with optimally efficient market
s and institution
s. This theory, known as neoclassical economics
has dominated mainstream theory, particularly in the US and UK, since the late 19th century when it was developed by figures such as Leon Walras
, William Stanley Jevons
, and Vilfredo Pareto
.
Beinhocker argues that neoclassical economics is fundamentally flawed, has a poor record of empirical validation, and that the strong assumptions the theory requires serve to make economics of less relevance to real world issues than the field otherwise might be. Beinhocker claims that neoclassical theory is in the process of being supplanted by what he calls complexity economics
- the view that the economy is a complex adaptive system
made up of realistically rational agents who dynamically
interact with each other in an evolutionary system
. Complexity economics is in turn built on foundations of a long-standing tradition of heterodox economics
that includes areas such as behavioral economics, institutional economics
, Austrian economics, and evolutionary economics
.
In the Origin of Wealth Beinhocker reviews the work of researchers such as Brian Arthur, J. Doyne Farmer
, Samuel Bowles
, and a number of others, many of whom are affiliated with the Santa Fe Institute
, who are pioneering work in this emerging field. He also discusses what the practical implications of these new ideas are for the fields of business strategy, organization
, finance theory, as well as its impact on long-standing debates between the left
and right
in the political sphere, such as the role of states
versus markets, and whether humans are inherently altruistic
or self-regarding.
In the Origin of Wealth Beinhocker states that if sources of oscillations are endogenous rather than exogenous shocks, then one implication is that the standard solutions of interest rate cuts and increased government spending does not address the root causes of the cycle; they merely address the symptoms. p127.
McKinsey & Company
McKinsey & Company, Inc. is a global management consulting firm that focuses on solving issues of concern to senior management. McKinsey serves as an adviser to many businesses, governments, and institutions...
, where he conducts research on economics, management, and public policy issues. He was previously a partner at McKinsey and a coleader of its global strategy practice. His career has bridged both the business and academic worlds. He has been a software CEO, a venture capitalist, and an Executive Director of the Corporate Executive Board. He has also held research appointments at the Harvard Business School
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
and the MIT Sloan School of Management
MIT Sloan School of Management
The MIT Sloan School of Management is the business school of the Massachusetts Institute of Technology, in Cambridge, Massachusetts....
, and has been a visiting scholar at the Santa Fe Institute
Santa Fe Institute
The Santa Fe Institute is an independent, nonprofit theoretical research institute located in Santa Fe and dedicated to the multidisciplinary study of the fundamental principles of complex adaptive systems, including physical, computational, biological, and social systems.The Institute houses a...
. He is a graduate of Dartmouth College
Dartmouth College
Dartmouth College is a private, Ivy League university in Hanover, New Hampshire, United States. The institution comprises a liberal arts college, Dartmouth Medical School, Thayer School of Engineering, and the Tuck School of Business, as well as 19 graduate programs in the arts and sciences...
and the MIT Sloan School of Management
MIT Sloan School of Management
The MIT Sloan School of Management is the business school of the Massachusetts Institute of Technology, in Cambridge, Massachusetts....
where he was a Henry Ford II Scholar.
Fortune
Fortune (magazine)
Fortune is a global business magazine published by Time Inc. Founded by Henry Luce in 1930, the publishing business, consisting of Time, Life, Fortune, and Sports Illustrated, grew to become Time Warner. In turn, AOL grew as it acquired Time Warner in 2000 when Time Warner was the world's largest...
magazine has named Beinhocker a "Business Leader of the Next Century," and his writings on business and economics have appeared in a variety of publications, including the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
.
Originally from Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Massachusetts, he lives in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
with his second wife Tilly Franklin, a venture capitalist at Apax Partners
Apax Partners
Apax Partners LLP is a global private equity and venture capital firm, headquartered in London. The company also operates out of eight other offices in New York, Hong Kong, Mumbai, Tel-Aviv, Madrid, Stockholm, Milan and Munich. The firm, including its various predecessors, have raised...
and their daughter Anna. His first marriage was to Ruth Anna Davidon, an Olympic rower.
Research
His book The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Harvard Business School Press, 2006) describes how advances in fields ranging from evolutionEvolution
Evolution is any change across successive generations in the heritable characteristics of biological populations. Evolutionary processes give rise to diversity at every level of biological organisation, including species, individual organisms and molecules such as DNA and proteins.Life on Earth...
ary theory, to physics
Physics
Physics is a natural science that involves the study of matter and its motion through spacetime, along with related concepts such as energy and force. More broadly, it is the general analysis of nature, conducted in order to understand how the universe behaves.Physics is one of the oldest academic...
, biology
Biology
Biology is a natural science concerned with the study of life and living organisms, including their structure, function, growth, origin, evolution, distribution, and taxonomy. Biology is a vast subject containing many subdivisions, topics, and disciplines...
, computer science
Computer science
Computer science or computing science is the study of the theoretical foundations of information and computation and of practical techniques for their implementation and application in computer systems...
, and cognitive science
Cognitive science
Cognitive science is the interdisciplinary scientific study of mind and its processes. It examines what cognition is, what it does and how it works. It includes research on how information is processed , represented, and transformed in behaviour, nervous system or machine...
are fundamentally changing the way economists view the workings of the economy. For the past century, economists have viewed the economy as an equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
system made up of perfectly rational
Rational choice theory
Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. It is the main theoretical paradigm in the currently-dominant school of microeconomics...
agents
Agent (economics)
In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory....
with access to full information, who produce and consume goods and services in economies with optimally efficient market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
s and institution
Institution
An institution is any structure or mechanism of social order and cooperation governing the behavior of a set of individuals within a given human community...
s. This theory, known as neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
has dominated mainstream theory, particularly in the US and UK, since the late 19th century when it was developed by figures such as Leon Walras
Léon Walras
Marie-Esprit-Léon Walras was a French mathematical economist associated with the creation of the general equilibrium theory.-Life and career:...
, William Stanley Jevons
William Stanley Jevons
William Stanley Jevons was a British economist and logician.Irving Fisher described his book The Theory of Political Economy as beginning the mathematical method in economics. It made the case that economics as a science concerned with quantities is necessarily mathematical...
, and Vilfredo Pareto
Vilfredo Pareto
Vilfredo Federico Damaso Pareto , born Wilfried Fritz Pareto, was an Italian engineer, sociologist, economist, political scientist and philosopher. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals' choices....
.
Beinhocker argues that neoclassical economics is fundamentally flawed, has a poor record of empirical validation, and that the strong assumptions the theory requires serve to make economics of less relevance to real world issues than the field otherwise might be. Beinhocker claims that neoclassical theory is in the process of being supplanted by what he calls complexity economics
Complexity economics
Complexity economics is the application of complexity science to the problems of economics. It studies computer simulations to gain insight into economic dynamics, and avoids the assumption that the economy is a system in equilibrium.- Models :...
- the view that the economy is a complex adaptive system
Complex adaptive system
Complex adaptive systems are special cases of complex systems. They are complex in that they are dynamic networks of interactions and relationships not aggregations of static entities...
made up of realistically rational agents who dynamically
Dynamical system
A dynamical system is a concept in mathematics where a fixed rule describes the time dependence of a point in a geometrical space. Examples include the mathematical models that describe the swinging of a clock pendulum, the flow of water in a pipe, and the number of fish each springtime in a...
interact with each other in an evolutionary system
Evolutionary computation
In computer science, evolutionary computation is a subfield of artificial intelligence that involves combinatorial optimization problems....
. Complexity economics is in turn built on foundations of a long-standing tradition of heterodox economics
Heterodox economics
"Heterodox economics" refers to approaches or to schools of economic thought that are considered outside of "mainstream economics". Mainstream economists sometimes assert that it has little or no influence on the vast majority of academic economists in the English speaking world. "Mainstream...
that includes areas such as behavioral economics, institutional economics
Institutional economics
Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" sphere of society on the...
, Austrian economics, and evolutionary economics
Evolutionary economics
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology...
.
In the Origin of Wealth Beinhocker reviews the work of researchers such as Brian Arthur, J. Doyne Farmer
J. Doyne Farmer
J. Doyne Farmer is an American physicist and entrepreneur, with interest in chaos theory and complexity. He is a professor at the Santa Fe Institute. He was also a member of Eudaemonic Enterprises.-Biography:...
, Samuel Bowles
Samuel Bowles (economist)
Samuel Bowles is an American economist and Professor Emeritus at the University of Massachusetts, Amherst where he taught courses on microeconomics and the theory of institutions.- Biography :...
, and a number of others, many of whom are affiliated with the Santa Fe Institute
Santa Fe Institute
The Santa Fe Institute is an independent, nonprofit theoretical research institute located in Santa Fe and dedicated to the multidisciplinary study of the fundamental principles of complex adaptive systems, including physical, computational, biological, and social systems.The Institute houses a...
, who are pioneering work in this emerging field. He also discusses what the practical implications of these new ideas are for the fields of business strategy, organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
, finance theory, as well as its impact on long-standing debates between the left
Left-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
and right
Right-wing politics
In politics, Right, right-wing and rightist generally refer to support for a hierarchical society justified on the basis of an appeal to natural law or tradition. To varying degrees, the Right rejects the egalitarian objectives of left-wing politics, claiming that the imposition of equality is...
in the political sphere, such as the role of states
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
versus markets, and whether humans are inherently altruistic
Altruism
Altruism is a concern for the welfare of others. It is a traditional virtue in many cultures, and a core aspect of various religious traditions, though the concept of 'others' toward whom concern should be directed can vary among cultures and religions. Altruism is the opposite of...
or self-regarding.
In the Origin of Wealth Beinhocker states that if sources of oscillations are endogenous rather than exogenous shocks, then one implication is that the standard solutions of interest rate cuts and increased government spending does not address the root causes of the cycle; they merely address the symptoms. p127.
External links
- The Origin of Wealth - official book website