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Organisations, Innovation and Complexity: New Perspectives on the Knowledge Economy

9^th-10^th September 2004
University of Manchester, Manchester,
England, UK.

Why is Economics not a Complex Systems Science?

John Foster

j.foster@economics.uq.edu.au

The School of Economics,
The University of Queensland, Australia

Abstract

Economics is viewed as a discipline that is based primarily on ‘simplistic’ theorizing, centred upon constrained optimization. As such, it is a historical and outcome focused, ie, it does not deal with economic processes. It is argued that all parts of the economy are inhabited by complex adaptive systems operating in complicated historical contexts and that this should be acknowledged at the core of economic analysis. It is explained how economics changes in fundamental ways when such a perspective is adopted, even if the presumption that people will try to optimize is retained. This is illustrated through discussion of how the ‘production function’ construct has been used to provide an abstract representation of the network structures that exist in complex adaptive systems such as firms. It is argued that this has led to a serious understatement of the importance of rule systems that govern the connections in productive networks. The macroeconomics of John Maynard Keynes is then revisited to provide an example of how some economists in earlier times were able to provide powerful economic analysis that was based on intuitions that we can now classify as belonging to complex systems perspective on the economy. Throughout the paper, the reasons why a complex systems perspective did not develop in the mainstream of economics in the 20th Century, despite the massive popularity of an economist like Keynes, are discussed and this is returned to in the concluding section where the prospect of paradigmatic change occurring in the future is evaluated.

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