Markets, whether subject to intervention or not, do not operate in isolation. Each market consists of a system that makes up a component of a network of ever larger systems culminating in what we might refer to as the world economy. We cannot, however, understand any economy as a unit. We must always keep the network, interconnected, nature of economies in mind.

In this section we will examine the systemic nature of markets. We will explain why all of us must play the role of participants and can never be effective controllers of the systems we refer to as economies.

Mathematical modeling has rather severe limitations for depicting economic systems. Modeling, however, can prove useful within carefully controlled variables. In this section, I have developed some models of the simple economy for the purpose of demonstrating some fundamental interactions in economic systems.

Modeling a Simple Economy

Jay Forrester
Developer of System Dynamics

As complex adaptive systems markets do not lend themselves to mathematical models — in spite of the practice of many economic practitioners. If one is careful about the variables used, however, simple models can prove useful in demonstrating economic theory.

I have begun this section on economic system models with models of a simple economy in order to introduce some fundamental concepts about models and the economy. (Although you can view each part separately, I strongly suggest that you work through them in sequence.)