The Guidance of an Enterprise Economy
592 pp., 6 x 9 in, 44 figures, 21 tables
- Published: September 23, 2016
- Publisher: The MIT Press
- Published: November 1, 2022
- Publisher: The MIT Press
A rigorous theory of money, credit, and bankruptcy in the context of a mixed economy, uniting Walrasian general equilibrium with macroeconomic dynamics and Schumpeterian innovation.
This book offers a rigorous study of control, guidance, and coordination problems of an enterprise economy, with attention to the roles of money and financial institutions. The approach is distinctive in drawing on game theory, methods of physics and experimental gaming, and, more generally, a broader evolutionary perspective from the biological and behavioral sciences. The proposed theory unites Walrasian general equilibrium with macroeconomic dynamics and Schumpeterian innovation utilizing strategic market games. Problems concerning the meaning of rational economic behavior and the concept of solution are noted.
The authors argue that process models of the economy can be built that are consistent with the general equilibrium system but become progressively more complex as new functions are added. Explicit embedding of the economy within the framework of government and society provides a natural, both formal and informal, control system.
The authors describe how to build and analyze multistate models with simple assumptions about behavior, and develop a general modeling methodology for the construction of models as playable games.
This is a landmark volume. The primary lacuna in integrating microeconomics and macroeconomics has been the failure to reconcile general equilibrium theory with monetary theory. This book represents the first modern attempt to provide an intellectual framework in which money appears naturally in the various market institutions.
E. Roy Weintraub, Professor of Economics, Duke University
J. M. Keynes once said that a master economist must be a mathematician, historian, statesman, and philosopher, must understand symbols and speak in words, must contemplate the particular in terms of the general, and must touch abstract and concrete in the same flight of thought. Martin Shubik and Eric Smith are master economists. Their book is a masterful presentation blending theory and practice in imaginative ways.
David Colander, Distinguished College Professor, Middlebury College; author of Complexity and the Art of Public Policy
General equilibrium theory provides our deepest insights into how an economy is structured. But it takes as given the institutions and processes by which an equilibrium can be reached. Shubik and Smith's book fills both these gaps, creatively and elegantly. They show that in any attempt to reinterpret general equilibrium as a process model institutions must emerge. Brilliant and important work!
W. Brian Arthur, External Professor, Santa Fe Institute