SYSTEMIC OPENNESS OF THE ECONOMY AND NORMATIVE ANALYSIS

The paper discusses economic analysis as a normative – as opposed to positive – science. Contrary to conventional economics, it argues that: the economy does not consist of markets alone; both the economy and markets are open systems. The organization of markets and other economic activities therefore depends on the interaction between the economy and the rest of society. What configuration holds in practice is a matter of public policy. In this perspective, public policy is an intrinsic part of economic analysis, not something that follows once the economy has been investigated.

The paper also argues that markets have a rationale of their own. As a consequence, public policy must define – or co-determine – the appropriate economic configuration not only by acting upon the institutional setup of markets but also by identifying those sections of the economy that should be coordinated by markets and those that should resort to other economic institutions.