Wednesday, April 18, 2007

Darwin Needs No Introductions to Adam Smith

Denis Pombriat write in the Beagle Research Group (“insight advice results”) Blog under the heading: “Mr Darwin, Meet Mr Smith” (18 April):

There is actually a new way of thinking about economics, called complexity economics, which views economics through the Darwinian lens and comes up with some better explanations for the way the world works than the classical economics handed down to us from people like Adam Smith.

Just as I won't get into monkeys here, it is not my intent to go deep into complexity economics either, there isn't enough space. If you'd like to know more though, I can recommend "The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics," by Eric Beinhocker. The book is published by Harvard Business School Press and the jacket says Beinhocker is an adviser to McKinsey & Company, so don't let the "radical" in the subtitle throw you: this is not "The Communist Manifesto."

Beinhocker provides the theoretical underpinnings for Clay Christenson's observations in "The Innovator's Dilemma," which I think does a good job of explaining the ebb and flow of individual innovations. If I had to boil it down, the reason for loss of market share it would be failure to innovate and I wonder if we're seeing some of that failure today in enterprise software. I don't know how else to explain the tepid response many vendors have so far given to the Software-as-a-Service movement

Yes, Complex Adaptive System thinking is a new way of thinking as an economist, and yes it probably has a great future, and yes, Eric Beinhocker has written an informative book on this and related subjects.

However, how reliable a guide he is to CAS is a less certain issue. Last year (on 8 August, 15 August,17 August, 26 August,13 September 2006 – see archives for August and September, 2006, by clicking on these months in the right hand column) I wrote a number of posts part in praise of Beinhocker and then in more skeptical tones when I continued reading through his book and his coverage of subjects I knew a lot more about than I did of CAS at that time (topics like Adam Smith and John Nash for example).

Denis Pombriat appears to be software genius with a knowledge of business innovation, two specialities which in my experience do not always go together, and he may be on to something from CAS in terms of evolutionary thinking. This is apposite today as it is appropriate to understand that Smith was only a short step from being a thinker with a social-evolutionary approach to society. He was a close friend and intellectual buddy of James Hutton, one of the earliest geologists of the Scottish Enlightenment, who correctly surmised from his field research into rock formations that the world was a lot older than the ridiculous statement of Bishop Ussher that the Earth was created on October 22, 4004 BC (details on Google) because the dates given in the Bible added to this figure.

All of Smith’s Works show elements of his evolutionary approach, especially in respect of societies slowly and gradually changing (backwards in relapses and forwards in spurts). Charles Darwin, like most educated people in the 19th century, read Wealth of Nations in parts. Hence, I am not sure why Denis Pombriat thinks Darwin needs an introduction to Smith. He was fairly familiar with his and others’ Works (Malthus for example) on political economy. Nothing Darwin wrote in Origins of Species would have been at variance to Wealth of Nations, Moral Sentiments or Lectures on Jurisprudence

The same cannot be said, possibly, for neoclassical modellers under the influence of Chicago, for whom time is a missing element, and evolution another subject.

[I may add that despite writing to Eric Beinhocker several times asking quesitons about his references to Smith and Nash, I did not receive replies or acknowledgements, nor even from comments of mine that appeared on web sites to which Eric has access.]


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