Guidance and Optimal Control of Free-Market Economies: A New Interpretation

Abstract

The biological and social sciences offer many examples of complex systems which were not consciously designed or engineered but which have evolved over long periods from more primitive forms. Built-in mechanisms for control or guidance of such systems may be quite elaborate but somewhat imperfect and indirect. Two primary propositions are discussed. The first is that the evolution of the complex markets basic in western economies has realized an institutional structure through which decentralized guidance of the economy can be implemented. The second is that with such market structures it may be possible to design economic policies which realize sufficient control of the economic system without direct intervention in the optimizing decisions of individual elements in the system. The paper is primarily tutorial and surveys the relevant technical literature on models of economic growth. However, some new results and a new interpretation of known results are presented.