The Layman's Guide to Economics
Five easy lessons to master free market economics, without math or graphs

Lesson 1. Evolutionary Economics
Welcome to the ®evolution

The first key to understanding free-market economics is recognizing it not as a collection of abstract doctrines, ridiculous assumptions or complex mathematical formulas - but merely as an evolved system of rules and institutions allowing society to live better.

Many free-market advocates sadly fall for the delusion that free-market economics is either a) intuitively moral or b) logically superior. The reason why these same free market advocates are widely disregarded in practice is because neither is the case in practice. There is no principled basis for free market outcomes (Why should Michael Eisner make more money than Colin Powell?), and there is no logical basis for them either (How did a 20-year old-college dropout named Michael Dell push IBM, a blue-chip conglomerate staffed with 200+ IQ Ph.Ds, out of the personal computer business?) Recognizing this fact is the key to truly understanding economics.

Instead, stated simply, markets are merely a set of rules and institutions encouraging free choice among individuals. It just so happens that this system, in effect, is an evolved "search algorithm" for the most socially useful advances in technology, institutions, and business strategy.

The leading book explaining the idea of Evolutionary Economics is The Origin of Wealth, written by Eric Beinhocker. The book brilliantly synthesizes the main insights of economists such as Adam Smith (Markets create an Invisible Hand, finding socially-optimal results) and Friedrich Hayek (Free markets create a Spontaneous Order, an efficient result that can't be predicted or controlled by government) with emerging scientific knowledge including network theory, evolutionary biology, public choice theory and more. Beinhocker's main idea, and the main idea of Evolutionary Economics, is that modern democratic capitalism is simply a highly-evolved system of discovering Good Tricks to aid survival and help ensure human happiness.

Beinhocker boils down evolution (biological, technological and social) to a single, universal process by which all possible options are differentiated, the superior options are selected, and the winning option(s) is amplified. This, not coincidentally, is exactly how markets work. And just as not coincidentally, the results from markets keep getting better.

Open trading has consistently given humans better ways to live from the beginning of time. Some archaeologists believe that trade may have even predated agriculture, as ancient tribes have been found buried with tools of foreign stones unavailable in their local areas. However, it wasn't until recently that laws allowed market forces to finally make their truly evolutionary impact on society.

In 1750, global per-capita GDP was a paltry $150, barely above the estimated $90 of earlier hunter-gatherer societies. In the next 250 years of global trade and technological revolution, however, global per-capita GDP increased 37 times over - to its current level of over $6,000. (Current U.S. per-capita GDP is a stratospheric $44,000 - see Section 2 for more on GDP.) Market innovations have cut the relative cost of food by two-thirds since 1957, and worldwide poverty has fallen more in the past 50 years, the much-maligned golden years of globalization and Multinational Corporate Exploitation, than in the previous 500 years of human history.