. the implication of the second law is that if the system were ever to reach equilibrium it would be dead. in effect, te classifies economy as a closed equilibrium system, which violates the laws of physics, as they are now known to exist. beinhocker proposes an alternative to te, which he terms complexity economics, ce. the complex economy evolves according to the same laws as does biological evolution. evolution is an algorithm for finding “ fit ” designs in enormous design spaces. it has been described as “ creating design without a designer ”. three elements feature in the evolutionary process : variation within the population, selection of the fittest, and replication of the successful design. in beinhocker ’ s schema, business plans are the selection process by which the fittest physical technologies ( pts ) and the fittest social technologies ( sts ) are selected and replicated. pts are methods and designs for transforming matter, energy and information from one state into another in pursuit of a goal or goals. in the case of the economy, business goals are to be profitable and to have the resources to grow and cope with change. the evolution of pts combines induction ( learning from experience ) with deduction ( drawing inference from theory and observation ). technology evolution is the result of humans ’ deductive tinkering search through the near infinite possibilities of pt space. the invention of science, which derives laws from theories which are tested repeatedly under controlled conditions, dramatically increased the hit rate of deductive insights. sts are methods and designs for organising people in pursuit of goal or goals. they may include institutions, structures, roles, processes, and cultural norms. fit st designs are those which enable people to play non - zero - sum games, and to capture the gains. such designs require 1 ) that there be the potential for non - zero - sum games ; 2 ) that payoff schemes provide incentives to play the game ; and 3 ) that techniques are in place for sanctioning anyone who thinks of defecting. beinhocker concludes that viewing the economy as a complex adaptive system provides us with a new set of tools, techniques and theories for explaining economic phenomena. these include the concepts of design spaces, the processes of evolution just mentioned, and the notion of “ fit order ” which makes for successful pts and sts. the author gives examples of how deductive and intuitive processes can be employed to improve the success rate in selecting the fittest pts and sts. he admits that his

the dollar, in southern africa the rand, in the indian sub - continent the rupee. it is the notion of flexible exchange rates that is ridiculous, not the acceptance of the superiority of pegged exchange arrangements. we should remember that the notion that flexible exchange rates are an acceptable way to manage the international economy has risen to ascendency only in the last 3 decades or so, a period i believe will be seen by history as a dark age of economics. prices have not been set by markets since the end of the agrarian economy a second example of economists ’ misrepresentation of the world is the notion that prices are determined by an equilibrium of supply and demand in a market. this notion is so fundamental to economics that it is accepted without question, and not only by economists. a visitor from mars would find this quite strange, because when he looked around him, he would be hard pressed to find anything resembling a market in which buyers and sellers negotiate the price of things bought and sold. in real life retail prices are always predetermined by the seller, and wholesale, producer and other prices are determined by contract. this was not always the case. economic history is not my specialty, but my understanding is that in the agrarian economy economic transactions typically took place via markets. the farmer would till his fields and raise his livestock five days a week, and on the sixth day he would load his produce on some form of transportation and take it to the nearest market town, where he would trade it with artisans, fishermen and other farmers who had products that he needed and that his household did not produce. in many african societies, i am told, the marketing is done by women. the seventh day was often the day of rest and recuperation, at least in the western societies from whom we draw our traditions. in this economy, sellers will adjust their prices over the course of the market day to ensure that they dispose of the entire supply that they have brought to market. this was the world in which the early economists like adam smith grew up, and these were the arrangements which they reflected in their models of the economy. it was a quite literal description of the behaviour they experienced every day. the overwhelming proportion of the populations lived in villages in the countryside, their daily activity for most of the week was production and consumption. trading, that is, economic exchange, took place only on a single day, in a discrete space, for a specified time. it made sense to think of