The Origin of Wealth summary

Introduction

The Origin of Wealth by Eric Beinhocker, what is in it for me, discover how the economy really works. It seems like every time you skim through the paper, or turn on the evening news, you are faced with news about the economy. Especially during these times of economic crisis, we are constantly confronted with figures on the stock market, unemployment, economic policy, gas prices, or the latest scandal from some major business. And then, come the pundits, the politicians, and the experts who all pontificate about the problems of the old way, and their bold, fresh ideas that will definitely 100% without a doubt get our economy back on track.

However, as you will learn in the origin of wealth, these grand ideas and sharp criticisms are all founded in traditional economic theories, rooted in a fallacious understanding of human nature, and sometimes completely divorced from reality. This reality, as it turns out, is far more complex than the pundits would make it seem. Economic policy cannot be about flipping a switch, or pushing a button to set everything right. In fact, economic development is far too rich, dynamic, and adaptive to be reduced to these simple solutions.

In this summary, you will learn all about how you can understand the economy you participate in, why it is relevant to your life, and what you can do to shape a more positive future. This summary will also show you how economies sprout up wherever there is human society, why the shirt you are wearing is the product of evolution, why you are more likely to refuse a free $10 bill under certain circumstances, and why some societies prefer you to have a few good cows over a few thousand dollars in the bank. This is The Origin of Wealth by Eric Beinhocker.

Traditional Economic Theories Are Flawed

1. Traditional economic theories are unrealistic and inadequate. If you have been paying even the slightest attention to the news in recent years, then you have surely noticed the many economic shocks and crises 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 do not 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 does not 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-centered 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.