Building theories of economic process

Abstract

Economics concerns phenomena on the interface between materials and processes in the physical world and strategic actions in cognitive, legal, and cultural realms. A very limited set of questions about the existence of rationally optimal allocations of goods has been asked within the mathematical framework of economic general equilibrium theory. Independently, diverse ad hoc models of particular economic systems have been built in operations research, macroeconomics, and most recently in the growing field of econophysics. Adequate attention has not been given, up to recently, to frameworks for integrative modeling of economic process, comparable in generality to the mathematics of equilibrium theory but capable of reproducing the dynamics and contingency structure of physical and strategic transformations, and the institutions that serve them. We sketch a possible form for such a general modeling framework, with particular attention to the control relation of the financial sector to the underlying productive economy. We emphasize the importance of the structure of physical processes to economic phenomena, particularly symmetries associated with scaling and the continuous or discrete passage of time. Finally, as an example of the kind of problem such a framework seems necessary to understand, we discuss the famous Fisher equation for the velocity of money and its implications for the use of money supply as a control over trade. © 2008 Wiley Periodicals, Inc.