A call for ‘open system’ economic thinking fit for the 21st century
A solidified chasm between theory and reality
For at least, the past half century, predominant streams of economics research have been relying on a ‘closed system’ approach to understanding the economy and guiding public policy. As explained at large by the economist Sheila Dow in her book “Foundations for New Economic Thinking”, published back in 2012, a closed system approach rests on the traditional scientific perspective that commands two fundamental criteria to be met. The first is an extrinsic or external condition, whereby the system under observation, representing the object of theory can be isolated from outside influences. The second is an intrinsic or internal condition requiring elements or agents inside the system to behave ‘well’ or in a ‘consistent’ manner. However, since experimental evidence under controlled environment settings is hard to generate in practice in economics, economists have often turned their attention to the second criterion. This refers to the internal consistency of theoretical structures, in that all elements are connected to each other, ensuring the system is well-defined, unambiguous and stable in its mechanistic behaviour. It means analytically mapping inputs to unique outputs and delivering definitive mathematical solutions via predictive analytical or computational models.
Under the typical closed system approach to economic thinking, the intrinsic condition is considered crucial to validating scientific proposals. It is customarily viewed as a non-negotiable condition for scientific knowledge to emerge. Otherwise, so the classical logic goes, if a theory is inconsistent, scientists could infer anything they wish from it. It’s not easy. Researchers engaged in interdisciplinary work quickly find that their counterparts care about different things, have different ideas about how things work and operate in different ways. On a practical level, communicating can be difficult because of differences in language use.
Essentially, a closed system philosophy favours a certain ‘scientifically legitimate’ way of doing economics. This emphasises a pursuit for universal principles and general laws. It draws on deductive reasoning, whereby specific conclusions follow from general premises, ‘objective’ facts, event regularities, and fixed meanings of terms. One may argue that the implications have been severe, restraining progress in both knowledge generation and concrete sustainability outcomes. Moreover, this monistic quest for knowledge, advocating for a single fundamental perspective of economic realities and excluding other approaches that are dismissed as ‘non-scientific’ rests on relatively shaky grounds. There is an inherent elemental tension between internal logical consistency and external validity, between mathematically elegant clear-cut, unique solutions and economic realism or practical applicability. An in-built critical chasm has solidified in most mainstream economic thinking, a chasm between theory and reality that tends to be brushed aside, overlooked. This has steadily eroded the ability of many mainstream economic models to shed light on observed economic dynamics and offer fit-for-purpose, effective policy advice.
From an optimising equilibrating machine to a socially constructed fluid economy
The alternative to the status-quo is to quicken the pace of shifting instead towards an ‘open system’ perspective. The critical properties of such an approach are discussed elaborately in the literature, which can be summarised, in a nutshell, along three lines of argumentation. The first angle relates to the ontological lens, which tackles the ‘whatness’ of the nature of the economy. A closed system view reduces the economy to a system relatively well isolated from its external environment, with all relevant variables identifiable and classifiable, concepts with meanings unchangeable, and aggregate behaviour amenable to disaggregation into individual behaviour and vice-versa, irrespective of unidirectional historical time. In this vision, economic agents, notably firms and households display fixed preferences in that they are unchanging and independent of societal influences, norms and values. Critically, they also display homogeneous behaviour in that they are all ‘hyper-rational’, as they always optimise, do not make systematic errors, and are self-interested in their decision-making. At the aggregate level, this results in an economy that stabilises under a unique optimal equilibrium state, where, given constraints, all resources are efficiently allocated. This permits, in theory, economic behaviour to be quantified, predicted and thus controlled. For some problems it might work. Kids are taught to break down maths problems to make things as simple as possible. Computers with multiple processors do the same so they can solve each part in parallel – giving faster results. Why not apply the same logic?
On the contrary, an open system ontology views economies as relentlessly changing, evolving, and being adaptive and embedded in history. The emphasis is not on individual optimising decision-making behaviour per se driving overall economic dynamics. It is rather on the synergistic and antagonistic effects that arise from interactions between social actors with heterogeneous preferences, goals and behaviour, such as rules of thumb, emotions, and limited rationality. The vision is of an economy that never reaches a stable equilibrium and is subjected to deep, unquantifiable uncertainty. The nature of the economy is inherently dynamic and cannot be traced down to or linearly derived from the individual behaviour of its components. According to this worldview, the economy is never fully predictable. It cannot be controlled, neither from within, nor from outside. Consistency is achieved via the relationship between theory and reality, rather than being understood as internal to the theory.
An open system approach also allows for changeable system boundaries and structures. Connections between system elements are incomplete. Basic economic terms or concepts are mutable, depending on institutional and historical settings, on prevalent social values and the societal consensus. Economic terms are socially constructed and not set in stone. For instance, the seminal work of Robert Shiller on narrative economics is highly telling. According to this, the meanings of basic economic terms, such as markets, money, and prices evolve, depending on social needs and context. Open system dynamics are prone to producing novel, surprising results that bring unexpected insights and innovation effects. A classic example, typically associated with complexity science is that of Thomas Schelling’s (1971) model of housing discrimination. This showed how residential segregation and race selectivity may surprisingly emerge at the aggregate urban level. Despite a starting point of relative tolerance of individuals, who live in a multicultural context and have only mild preferences for living with neighbours with similar physical traits, the resulting dynamics end in racial discrimination at the system, urban level.
In brief, the ontological position of open system economic thinking allows for multiple defining elements of the nature of the economy to coexist, such as power relations, dynamics, and uncertainty, alongside the standard economics features of resource scarcity and competition. Further on, from each vision of reality results a vision of the type of knowledge one can expect and how to best build it.
From passive objectivity to active, value-driven contextual knowledge
The second angle relates to the epistemic stance of knowledge. This explores the question of why we know what we know. Open system foundations reflect a nature of knowledge that does not pretend to be a completely objective reflection of the environment, but rather a consensual tool, created within the system of reference, for helping society reach its own subjective goals. There are no claims to possessing true knowledge, uncovering universal law-like explanations. Instead, the onus is on discovering patterns, regularities and causal mechanisms that are partial, provisional or contextually bounded. The nature of knowledge depends on the values and purposes we set forth as a society. Within this vision, the economy serves as a mean to achieving socially agreed goals and directions. It does not advocate for a generalisable outcome, such as the ‘most efficient’ allocation of resources should markets be left to their own devices, as asserted under a closed system perspective.
In practice, an open system epistemology grants a crucial role to formal and informal institutions in proactively veering economic realities, rather than being passive receivers of ‘universal’ knowledge delivered by armchair economists under the guise of “pure economics” à la Léon Walras, the founding father of equilibrium economics. A revealing example within the current geopolitical context is the rise of industrial public policy. This is increasingly leveraged to support home-grown economic competitiveness, jobs, environmental protection and supply chain resilience across various economies. Industrial policy strategies are being deployed despite the championing by key international financial institutions, for the last few decades, of minimalist state intervention and a laissez-faire open economy. Particularly indicative is the recent half-heartedly recognition by the World Bank, a traditionally strong neoliberal, ‘free market’ advocator, that industrial policy tools may be much more effective in working for development than it previously admitted or initially thought.
From a one-size-fits-all to methodological pluralism
The third angle considers the methodological lens, responding to the ask of how knowledge is generated. Under an open system approach, there is no single way of producing knowledge. Instead, there is a rich and fragmented landscape of methodologies, depending on how economic realities are understood or which economic fundamentals are being prioritised. As the late British economic historian, Robert Skidelsky succinctly summarised, “the cardinal fault of [mainstream] economics lies not in specific doctrines, but in the methods it uses to reach its conclusions”. These models and methods are bundled in a closed system approach under the generic, uniform methodology of equilibrium under constrained optimisation and its myriad variants.
Derived from its ontological stance and under the guise of formal mathematics, the closed system approach permits the economy to reach a so-called ‘equilibrium’ state derived from the optimising (‘utility maximising’) behaviour of individual agents. In contrast, open systems economics adopts a pluralistic take on the methodological front. It is inclusive of mixed quantitative and qualitative methods deployed across various schools of economic thought. The caveat is that not everything goes. Instead, methodological diversity is self-scrutinising and self-selective. It is based on the schools of economic thought that have gradually evolved and solidified over time through systematic research, rational debate and criticism. This is especially poignant in our current world. Methodological pluralism and the co-existence of diverse approaches to generating knowledge about our economies could help guide our societies through the deep structural transformations required to effectively address complex sustainability challenges. To return to the words of Sheila Dow, “‘within an open-system approach, there is no contradiction involved in arguing for one’s own viewpoint, while respecting and being open to the viewpoints of others’.
What does this mean for research, policy and practice and why does it matter?
Embracing open system foundations in economics means accepting that economics can never be an exact science. It means being open to the diversity of approaches to generating or applying economic thinking. It matters, since, de facto, economics offers a multiplicity of views, an amazingly vast array of insights and innovative interdisciplinary collaborations that have resulted in a rich body of disparate methods. However, many of these have been marginalised or brushed aside, often for institutional reasons or motives of power dynamics. This abundance of diverse knowledge is a potent brew fermenting with ideas and tools for discovery that are eagerly waiting to more rewardingly nourish our collective imagination. It means that the criteria for what constitutes credible or valid knowledge need revisiting and expanding, such that economics more effectively supports decision-making and is adequately fit for the 21st century. It means always contextualising research findings and its potential policy implications, making sure assumptions represent the fundamentals of the economic society we live in. It means explicitly acknowledging and being aware of what the celebrated economist, Joseph Schumpeter referred to as the “pre-analytic cognitive act” or “vision” when conducting economics research. In other words, it means accepting the role that mental models and social values, including their emotional bases play in influencing economics knowledge production.
From a policy standpoint, it matters since decision-makers can influence and guide economic processes towards desired societal outcomes. However, they cannot control complex economic systems. The underlying implication here is that there is no optimal policy solution, such as an optimal carbon tax or price when it comes to climate policy. Policy interventions are never fully efficient and often have unexpected outcomes. Within this perspective, it would be wiser to ground policy in an institutional space that fosters collaboration, allows for diverse and conflicting perspectives, builds flexibility and slack in the system, shifts onus from efficiency to effectiveness, and permits adaptive, reactive and proactive behaviour along the way. In addition, the added benefit of policy embracing diversity in economic thinking is that it increases the likelihood of achieving new visions, which in turn has greater potential to spur innovation and creativity.
As the influential American urbanist Jane Jacobs once eloquently argued, it is the diversity in social ideas, alongside the regulatory environment that shape private investments. It is high time to coagulate, at a much faster pace, around open system principles to economic thinking and generate more socially helpful knowledge, for the benefit of our planet and people, across the board. Taken together in their interactions, complementarities and conflicts, the rich array of often-marginalised economics insights are much more likely to offer a better fit for the purpose of responding well to our 21st grand societal challenges.
This essay takes its inspiration from various sources from the literature, notably:
Chick, V. and S.C. Dow (2001) “Formalism, logic and reality: A Keynesian analysis”, Cambridge Journal of Economics 25: 705-721
del Rio-Chanona, M. et al (eds.) (2026) The Economy as an Evolving Complex System IV, Santa Fe Institute Press
Dow, S.C. (2012) “Foundations for New Economic Thinking: A Collection of Essays”, Basingstoke & New York, Palgrave Macmillan
Fernandez A.M. and T. Reed (2026) “Industrial Policy for Development: Approaches for the 21st century”, Policy Research Reports. Washington, DC: World Bank
Heylighen, F. (2018) “Complexity and Evolution: Fundamental concepts of a new scientific worldview”, VUB (Vrije Universiteit Brussel)
Jacobs, J. (1961) “The Death and Life of Great American Cities”, New York, Random House
Schelling, T.C. (1978) “Micromotives and Macrobehavior”, New York: WW Norton and Company
Schumpeter, J.A. (1954) “History of Economic Analysis”, edited from manuscript by Elizabeth Boody Schumpeter, Oxford University Press
Shiller, R.J. (2017) “Narrative Economics”, American Economic Review 107(4): 967-1004
Skidelsky, R. (2021) “What’s wrong with economics: A primer for the perplexed”, Yale University Press
Written by Șerban Scrieciu, ICENS lab founder, 25 May 2026
