The Guidance of an Enterprise Economy

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.

Martin Shubik was Seymour Knox Professor of Mathematical Institutional Economics (Emeritus) at Yale University's Cowles Foundation and School of Management and the author of the three-volume work The Theory of Money and Financial Institutions (MIT Press) and other books. He was also External Faculty of the Santa Fe Institute.

Eric Smith is Professor and Principal Investigator at the Earth-Life Science Institute in Tokyo and Research Professor at George Mason University's Krasnow Institute for Advanced Study. He is the coauthor of Symmetry and Collective Fluctuations in Evolutionary Games and The Origin and Nature of Life on Earth. He is External Faculty of the Santa Fe Institute.