Modelling Markets versus Market Economies: Success and Failure

Non-linear, stochastic, thermodynamic, agent based or network modelling are powerful tools brought from other fields into economics. Applied in almost every sub-field of economics, these tools had however substantial success only in the analysis of financial markets. We suggest that the reason for this is less the insufficiency of these technical tools but rather the incapacity of mainstream economic theory to adequately represent the functioning of modern market economies. We argue that the method of mainstream economics to understand market economies by the help of simultaneous price determination on all markets fails to provide a satisfactory representation of our economies. As a result, when modelling financial markets, the final goal a satisfactory determination of prices is achieved; but when modelling market economies, the final goal a satisfactory representation of modern market economies is not achieved even if all prices are satisfactorily determined.