Cross-Disciplinary Economic Theory

Abstract

A knowledge economy still produces goods and services, although by the important use of knowledge. Therefore, economic models are relevant to understanding how a knowledge economy should properly work, particularly the financial system in a knowledge economy. When finance fails, all knowledge stops. Cross-disciplinary approaches to societal models of a knowledge economy are necessary and useful, because societies are more complex than can be seen by any single social science discipline. This was dramatically demonstrated in the first decade of the twenty-first century by the major failure of mainstream economic theory, as a basis for financial regulation. The surprising thing was that the economic discipline as a whole did not take this empirical opportunity to rethink economic theory, to build together a new and valid theory. Instead, the schools of economics continued to argue with one another. We take this historical case of scholastic conflict to reexamine economic theory, but within a cross-disciplinary framework. We use the modeling that had been accomplished in the two conflicting economic schools—exogenous and endogenous schools. Each modeled parts of an economic system, production subsystem (exogenous school) and financial subsystem (endogenous school). But neither succeeded in modeling the whole of an economic system. Within a larger cross-disciplinary framework of societal dynamics theory, we show how to assemble these partial models into a more complete economic model.