Cross-Disciplinary Economic Theory
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Cross-Disciplinary Economic Theory Frederick Betz
Received: 14 November 2012 / Accepted: 9 June 2013 # Springer Science+Business Media New York 2013
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. Keywords Economic theory . Economic models . Cross disciplinary research
Introduction Cross-disciplinary research is essential because policies based upon research should be empirically valid. But research completely within the narrow bounds of a single discipline rarely results in valid theory, which realistically reflected the complexity of a whole society. The Global Financial Crisis of 2007–2008 was a dramatic case of F. Betz Korea University, Seoul, South Korea F. Betz (*) Portland State University, Portland, OR, USA e-mail: [email protected]
J Knowl Econ
this, wherein mainstream economic policy failed to anticipate the crisis, while it had been used to justify deregulation preceding the crisis. Policy failure in deregulation of the banking industry had been based upon an economic assumption that financial markets operated perfectly. Earlier, we analyzed this case in a cross-disciplinary framework—seeing how that failure of the knowledge economy went beyond simple explanation by economic ideas—also requiring ideas from other disciplines, such as sociology, management science, and management of technology (Betz 2012). The question we address here is not about the failure of a financial system but the failure of economic theory.
History—Division in Economic Theory in 2009–2012 Going back in time from 2012 to 2010 to 2009 (the recent years following the financial cri
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