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Cambridge Journal of Economics 2005 29(6):873-892; doi:10.1093/cje/bei083
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

From simplistic to complex systems in economics

John Foster*

* The University of Queensland

Address for correspondence: School of Economics, The University of Queensland, Brisbane, QLD 4072, Australia; email: j.foster{at}economics.uq.edu.au

Abstract

The applicability of complex systems theory in economics is evaluated and compared with standard approaches to economic theorising based upon constrained optimisation. A complex system is defined in the economic context and differentiated from complex systems in physio-chemical and biological settings. It is explained why it is necessary to approach economic analysis from a network, rather than a production and utility function perspective, when we are dealing with complex systems. It is argued that much of heterodox thought, particularly in neo-Schumpeterian and neo-Austrian evolutionary economics, can be placed within a complex systems perspective upon the economy. The challenge is to replace prevailing ‘simplistic’ theories, based in constrained optimisation, with ‘simple’ theories, derived from network representations in which value is created through the establishment of new connections between elements.

Key Words: Complex adaptive system • Complex system • Complex dynamics • Evolutionary economics • Logistic diffusion • Process optimisation

JEL classifications: B41, B52, B53, D20, D83, D85, L14, O33

Manuscript received December 1, 2003; final version received August 31, 2004.


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