Economic Systems


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.

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.

In this section, I have developed some models of the simple economy for the purpose of demonstrating some fundamental interactions in economic systems.

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When people make exchanges based on their individual subjective preferences the create an objective indicator of those relative preferences in the form of prices — the ratio of what is given relative to what is received. Those objective prices provide a way for economic actors to make calculations regarding the allocation of resources.

This link takes you to a model I have constructed that shows the relationship between direct exchange prices and money prices.

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Economic Systems — Markets viewed as Systems.