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Why is Economics not a Complex Systems Science?

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Abstract

Economics is viewed as a discipline that is mainly concerned with 'simplistic' theorizing, centered upon constrained optimization. As such, it is ahistorical 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 subject to constraints 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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  • Prof John Foster, 2004. "Why is Economics not a Complex Systems Science?," Discussion Papers Series 336, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uq2004:336
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    File URL: http://www.uq.edu.au/economics/abstract/336.pdf
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    References listed on IDEAS

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    1. Freeman, Chris & Louca, Francisco, 2002. "As Time Goes By: From the Industrial Revolutions to the Information Revolution," OUP Catalogue, Oxford University Press, number 9780199251056.
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    Cited by:

    1. Carl Chiarella & Corrado Di Guilmi, 2011. "Limit Distribution of Evolving Strategies in Financial Markets," Research Paper Series 294, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. James Derbyshire & Garry Haywood, 2007. "Schumpeterian 'Creative Destruction' and Strengthening the Business Stock Through Firm Formation," Research Papers 200739, University of Liverpool Management School.
    3. Brendan Markey-Towler & John Foster, 2013. "Why economic theory has little to say about the causes and effects of inequality," Discussion Papers Series 476, School of Economics, University of Queensland, Australia.
    4. Alberto Russo, 2009. "On the evolution of the Italian bank branch distribution," Economics Bulletin, AccessEcon, vol. 29(3), pages 2063-2078.
    5. Ron Martin & Peter Sunley, 2010. "Complexity Thinking and Evolutionary Economic Geography," Chapters,in: The Handbook of Evolutionary Economic Geography, chapter 4 Edward Elgar Publishing.
    6. Charlotte Bruun, 2016. "Rediscovering the Economics of Keynes in an Agent-Based Computational Setting," New Mathematics and Natural Computation (NMNC), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 77-96, July.
    7. repec:wsi:acsxxx:v:11:y:2008:i:05:n:s021952590800201x is not listed on IDEAS
    8. He, Zheng & Rayman-Bacchus, Lez & Wu, Yiming, 2011. "Self-organization of industrial clustering in a transition economy: A proposed framework and case study evidence from China," Research Policy, Elsevier, vol. 40(9), pages 1280-1294.
    9. Chris Noell, 2007. "A look into the nature of complex systems and beyond "Stonehenge" economics: coping with complexity or ignoring it in applied economics?," Agricultural Economics, International Association of Agricultural Economists, vol. 37(2-3), pages 219-235, September.
    10. Harper, David A. & Endres, Anthony M., 2010. "Capital as a layer cake: A systems approach to capital and its multi-level structure," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 30-41, May.
    11. Moreira, Paulo, 2013. "The Maritime Chain as a Complex Adaptive System," MPRA Paper 50895, University Library of Munich, Germany.

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