‘Macroeconomics as Systems Theory’ by Richard Wagner presents a novel and thought-provoking conception of the macroeconomy as a system dynamically evolving from the ongoing interactions of myriads of actors who build up, in Wagner’s words, an ecology of plans (Wagner 2020: vi). Wagner adds his voice to those economists who challenge mainstream economics as a discipline studying the macroeconomy through reductionist models mostly structured around equilibrium analysis or a ‘representative agent’ supposedly maximizing objective functions. For Wagner, there is a disconnect between this type of economic theory and real-world market processes. The oversimplifying models of mainstream macroeconomic theories are a distortive and misleading basis for policy analysis and policy prescriptions.

In his alternative conception of the macroeconomy, Wagner builds on the classical Hayekian/Austrian perspective in economics, which emphasizes the interdependence of actions at the micro level through time and their coordination primarily thanks to price fluctuations. The premise is that prices serve as the main signals helping some entrepreneurs form expectations about consumer demand and potential profit. Consequently, emerging prices cannot be at equilibrium because it is their constant movement that drives entrepreneurial decisions into satisfying evolving consumer preferences. Entrepreneurial interactions within the framework of private property and contractual freedom are deemed to facilitate transactions and market prices that come to achieve a good degree of systemic coordination (Boettke 2012). For the Austrian school of economics, mainstream economic theories, based on economic models and econometric analysis, overlook time variance and context heterogeneity that characterize the economic environment.

Wagner’s contribution is to explore macroeconomics from the perspective of complex systems consisting of networks of interacting agents. Wagner’s premise is that the economy is a complex system and that macroeconomic phenomena can be understood as processes of emergence from actions at the micro level. Emergence in complexity theory refers to the co-evolution and mutual reconfiguration of connected parts of a system, which continuously generate new functions and broader properties. This concept is often used to describe how complex systems such as the human body work, where the heart and the brain interact with several other organs, creating and sustaining life through the synergies of all interconnected systems. Another way to put it is that ‘the whole is greater than the sum of its parts’.

In this review, I will focus on a puzzling question that emerges when reading the book alongside these two premises: if we understand the market as an ecology of plans, does this perspective persuasively reassure us that the economy is a system of relatively ‘organised complexity’, as most Austrian economists tend to contend, or one that is – at least periodically, if not recurrently, prone to crises and entropy, as Post-Keynesians emphasise? In highlighting the notions of emergence and complexity, it is plausible to further inquire on how crises can also emerge out of this complexity. Wagner acknowledges that markets experience turbulence from the continuous injection of new plans into ‘the ecology of plans’ (Cf. Wagner 2020: 73; 137). But he does not go as far as explicitly acknowledging and delineating the potential of large-scale disorder emerging from market activities, let alone the risk of systemic crisis.


Critique of mainstream macroeconomics

Drawing on the work of the Swedish economist Erik Lindahl, Wagner builds his theory upon the distinction between choices and interactions. The epitome of Wagner’s book lies in his distinctive perspective on the relationship between micro and macro, emphasizing how dynamic interactions by actors at the micro-level lead to the emergence of a spontaneous and continually evolving (re)ordering of the macro properties of the system they (re)create:

‘No action occurs on the macro or societal level. To be sure, the characteristic features of the macro-level emerge from interactions among entities acting on the micro- and meso-levels” (Wagner 2020: 41)

In Chapter 2, Wagner criticizes mainstream macroeconomic models for neglecting real-life complexity and identifying macro-level failure with respect to unrealistic expectations built on equilibrium analysis or Pareto efficiency (2020: 51). Such a considerable degree of analytic reductionism becomes a misleading foundation for both theoretical generalization and policy recommendations.

To highlight his point, Wagner analogises the economy to a public piazza consisting of myriads of individuals whose actions and trajectories are not following a single predetermined route and do not conform to a central source of commands. The image of the piazza is contrasted to that of a parade led by a parade marshal. In the public piazza, there is no single entity capable of fully comprehending the entire pattern of continually evolving actions and interactions, ‘the jostling and bumping that you experience in a crowd’ (Wagner 2020: 177). Wagner presents the economy and society as a polycentric system with an ecological conception: trajectories and even institutional arrangements are what members of a society generate through their interactions, and these arrangements are emergent and not chosen outcomes (Wagner 2020: 66). Likewise, system-level properties in society and the economy change over time unpredictably, emerging from the ongoing actions and interactions among numerous individuals with diverse plans and knowledge.

This analogy is fundamental in Wagner’s critique, emphasizing the analytic implications from portraying the economy as a system reduced to a few measured variables or a model of homogeneous human behaviour akin to robotic status. Viewed from ‘high enough above’, the crowd might appear to be an imperfect example of a parade (Wagner 2020: 66). The perspective explains why mainstream macroeconomics generates a fundamental ontological illusion, looking at the economy as if it were a parade moving around a central mass. Wagner cautions against what he refers to as the ‘centralized mind’  where society is modelled as an energy-efficient machine.

Moreover, when it comes to understanding macroeconomics through actions on the micro-level (microfoundations), mainstream economics is also misled by highly reductionist ‘dynamic stochastic general equilibrium (DSGE)’ models. The DSGE models reduce complex societal interaction to simple choices, they assume a macro pattern and they subsequently outline the individual actions that would align with that macro pattern (Wagner 2020: 10). In the DSGE models:

‘People act as they are programmed to act by the utility functions they are presumed to possess and by the market-clearing prices they face. Within this analytical scheme, people are reduced to robotic status” (Wagner 2020: 8)

Instead, people on the ground are substantially heterogeneous with different preferences, diverse plans and different access to information, as well as diverse beliefs and understandings of reality (Wagner 2020: 229).

Both equilibrium models and the DSGE models reduce a complex system to unrealistic entities and reference points. Together, these two viewpoints give a misleading parallax of the economy. The mainstream image disregards that a macro system continually emerges and changes through interaction among heterogeneous actors (Wagner 2020: 141). Hence, the right sequence of a theory on the macroeconomy must begin with the analysis of individual actions and interactions, leading to the eventual manifestation of emergent macro patterns that continuously change.

This position supports scepticism towards government interventions in the economy. Wagner’s criticism of both equilibrium models and DSGE models adds to the Hayekian critique of state intervention as facing a fundamental knowledge problem. Mainstream economics, by presenting the economy as a tractable system contribute to the ‘pretence of knowledge’ in the words of Hayek. With macroeconomic policies, the stakes are high because of the scale of government intervention aiming to restore the ‘stability’ imagined by these models. The modelling mindset suggests that repair must be orchestrated by governmental entities which are assumed to stand outside the economic process (Wagner 2020: 131):

‘As a mechanical system, it possesses a designer’s teleology and is subject to the expectation–diagnosis–repair template’ (Wagner 2020: 128)

Wagner insists that no frequentist probability is feasible in understanding how a system will work. Knowing that economic policy is influenced by how mainstream economists conceive the economy as a phenomenon, seek to explain its performance and offer policy recommendations (White 2012), Wagner’s ontological distinction between mainstream macro theories and his view of complexity has important implications in policymaking. Insofar as mainstream economic theories see the economy as a quasi-mechanical system reduced to several variables and modelled behaviours, this suggests that any deviation from an imagined equilibrium or ‘rational behaviour’ can be fixed through government interventions targeting one or a few ‘variables’ or the type of modelled behaviour itself. Lamentably, according to Wagner, mainstream models are too reductionist and distortive to serve as a reliable justification for government interventions and a basis for policy prescriptions.

Wagner’s argument against government intervention is fundamentally epistemological. Moving from there, if we come to understand the economy as a complex and dynamic system, it may be possible to discern that large-scale interventions in that system can unleash an unpredictable wave of behavioural adaptations that can even escalate into serious unintended effects at the system level (Trantidis and Boettke 2021).

Wagner strengthens his sceptical stance on active macroeconomic interventions by presenting a conceptual comparison of markets versus politics as two distinct ‘ordering’ processes (Wagner 2020: 148). Building on public choice arguments in which politics is presented as a competitive field inhabited by – most often than not – opportunistic actors who want to gain at the expense of others, Wagner invokes the ‘incentives problem’ of politics: not only does a central authority not know how the system works and will evolve, but politicians and government officials make decisions based on their personal interests, electoral motivations and commitments to influential groups rather than the broader public interest. Wagner emphasizes the lack of residual responsibility for government error, as society bears the cost  of government decisions, and not the officials themselves.

A question here emerges: regardless of the limitations of politics in terms of perverse incentives and knowledge gaps, do economies still depend on some (imperfect) role of the state in the form of rules or interventions, even in order to operate with the degree of ordering envisaged by Wagner? It is commonplace to say that institutions shape how markets work. But this statement has a different urgency if we reject equilibrium analysis. If we understand the economy as a complex system, where economic actors react to disperse and often unclear signals, it is plausible to ask whether there can be too many entrepreneurial errors of judgment cascading into the type of interactions that make the macro-system very unstable and possibly prone to recessions, crises and collapse. Can risky decisions in financial markets driven by speculation lead to systemic error? Where are the safety brakes here? Where is the residual responsibility from actions leading to such a crisis?


The puzzle of market turbulence: coordination or instability?

Wagner acknowledges that markets and societies are continually in motion and that turbulence is part and parcel of this process (Wagner 2020: 21). Turbulence arises from the introduction of new plans and the abandonment of old ones, leading to mismatches between the initial vision that shaped the creation of an entrepreneurial plan and the subsequent evaluation of that plan in hindsight (Wagner 2020: 137; 144). Nearly everything one experiences comes as an exogenous shock, but from the point of view of a social system, these shocks are actually clashes among many plans that can never be fully coordinated (Wagner 2020: 129: 163). Turbulence is ‘a feature of normality’ but entrepreneurs have a good motivation to act in ways that ‘calm’ that turbulence (Wagner 2020: 139). Output gaps are a signal to these entrepreneurs that some others are knowingly failing to exploit gains from trade (Wagner 2020: 169). Trial-and-error processes of commercial competition (Wagner 2020: 90) and the ability of people to fabricate contractual terms and organizational arrangements are expected to moderate that turbulence (Wagner 2020: 47, emphasis added), and tend to generate a form of partial private ordering that is overall stabilizing:

‘Whatever the state of animal spirits, commercial debris will be created by failing enterprises. Private ordering provides a framework for clearing away that debris and converting it to alternative commercial uses’ (Wagner 2020: 148).

While debunking equilibrium-oriented models, Wagner sees a good degree of order in an economy without equilibrium, as it becomes clear in his analogy of markets and societies to a public piazza (2020: 12). Wagner’s public piazza does not allude to a cacophony of clashing plans, stumbling trajectories and occasionally herd-like panics and stampedes by crowds seeking the nearest exit. Wagner seems to suggest that the economy is a partly but adequately self-organizing system, adopting the notion of catallaxy (Wagner 2020: 229), namely the idea that a spontaneous order emerges from the actions of individuals comprising markets. In this concept, decisions and interactions based on private property and guided by price tend to help some pursue their plans – at least the most discerning and entrepreneurial ones – who coordinate with other partners and meet public demand for goods and services.

It is not clear if and when market dynamics and the emergent turbulence can occasionally or periodically become so disruptive that it could cause or threaten to trigger systemic risks, crisis or even system-level collapse. Reading the book, it seems there is little to worry about system-level market error, and little we can do about it at the level of governance if a crisis occurs.

Financial crises, such as that of 2008 casts a doubt on the analogy between the economy and a public piazza of pedestrians. Is this imagery fully representative of an economy led by giant profiteering hedge funds, banks too big to fail, and companies the size of a medium-sized national economy? Real market conditions differ from the lively and beautiful Italian piazza of humans, almost equally sized, shopping, sightseeing and walking to their workplace. It seems that the real ‘piazza’ out there is much messier: myriads of small pedestrians are walking through a risky terrain alongside large vehicles accelerating, some with loose brakes, and huge lorries speeding up, often recklessly, while opportunistic private gatekeepers assert control over several entry and exit corners. In short, while the dynamic and networked concept of the macroeconomy holds on,  it is important to acknowledge that the nodes in a polycentric system are far from equal. There are sharp power asymmetries and far more heterogeneity which defines how markets work.

To return to the piazza analogy, just as congestion and panic in the piazza can develop into a stampede, there is indeed a crucial concern with how market activities may lead to system-level disorder, and what governing institutions and rules can do about it. Key concerns come centre-stage: excessive risk-taking behaviour, perverse incentives affecting corporate management and the public sector, asymmetrical market power, knowledge asymmetries and moral hazard within and across firms etc. The 2008 global financial crisis and the Great Depression following the Wall Street Stock Exchange Crash of 1929 are monumental events that still loom large in intellectual memory.

Here, we can’t help noticing that there is a difference between accepting the notion of spontaneous emergence and describing these emergent outcomes as generally socially beneficial and relatively ordered. For instance, recessions and depressions are emergent outcomes of dynamic economic activities. Is the market a system of  relatively organized complexity as Wagner (and the Austrians) would contend, or a system of entropy, inevitably prone to tipping points and crises?

Is it possible that, instead of system-level catallaxy, there can be what I would name as metallaxy: when an evolving nexus of interdependent behaviours into unintended and/or unforeseen changes of behaviour on a large scale escalate that spiral out into tipping points at the system level, unpleasantly surprising and disrupting the plans of all other actors. A tipping point in any ecological system is a threshold where initially small events or developments accumulate and, often suddenly, push the ecosystem into a completely different state.

There is the fundamental objection that markets are prone to system-level crisis endogenously through the behaviours, choices and errors of a critical mass of market players taking decisions while following speculative trends despite radical uncertainty and often guided by short-term incentives for huge profits now. Post-Keynesians contend that markets are inherently unstable and that macroeconomic policies can stimulate aggregate demand and increase overall output.

Here comes the commonplace justification for state regulations and government intervention. Governments step up to prevent markets from creating too risky situations or, later, prevent a crisis from escalating. In the global financial crisis, governments engaged in unprecedented fiscal and monetary policy measures. They ‘socialized’ some of the costs of the crisis through bail-outs funded by high levels of public borrowing and money supply expansion. The stakes of not doing anything were thought to be higher: systemic collapse.

Returning to Wagner’s analogy, we may contend that any marketplace, any piazza, requires the state to avoid serious disruptions and disorder. This is still different from what most Post-Keynesians believe that governments can observe aggregate performance indices reflective of actual micro-level behaviour and take corrective actions. Wagner’s thesis indirectly engage with the post-Keynesian call for state interventions to stabilise an unsteady economy. Wagner  asserts that ‘[w]e cannot predict how [turbulence] will play out, we cannot model it ex ante but we can see order ex post , and therefore have faith in the spontaneously ordering nature of agency in such a complex environment’ (2020: 18-19). Moreover:

 “With respect to economic activity, there is no clear notion of a boundary between normal and abnormal variability in measured output once the presumption of flat-line equilibrium is abandoned. There are perhaps some grounds for thinking that natural volatility will vary with the intensity of animal spirits within the society, but this possibility does not provide some line of demarcation between normal and abnormal volatility.” (Wagner 2020: 161).

In other places, Wagner will move a step forward and admit that coordination requires something beyond market prices as data: ‘such patterns emerge through economic interaction among market participants, and with the quality of coordination depending on the processes through which coordination emerges’ (Wagner 2020: 29). In Wagner’s analysis, we do not see if and how market turbulence can lead to crisis or what can be defined as a crisis in the first place. When it comes to financial markets, Wagner’s short response to Minsky’s position (that capitalist economies are inherently unstable due to the workings of financial institutions and arrangements), is to point to the private self-ordering properties of a market of lenders and borrowers, as if there could be something close to equilibrium (Wagner 2020: 244), while expressing his scepticism of state intervention by debunking one of its epistemological basis: equilibrium analysis in mainstream macroeconomic theory.


Institutions, power and contestation

It is important to note that, in Wagner’s scholarship, economic and political activities are intertwined processes. In several places, Wagner introduces insights from his other magnus opus on entangled political economy (Wagner 2016). Markets and politics are entangled. This holistic conception of society makes it difficult to conceptually disentangle the notion of market failure or market instability from political processes and government actions occurring in synergy with market activities. In an entangled political economy, it is difficult to distinguish whether any observed turbulence or crisis has come from ‘pure market failure’ or is intermingled with or primarily caused by government error. And it is equally difficult to discern the right path of remedy too. Interestingly, however, Wagner’s criticism of state planning and government intervention is based on a conception of markets in the form of an ideal type rather than that of an entangled process.

Nevertheless, Wagner acknowledges the foundational role of institutional arrangements for bringing some form of public ordering that can be beneficial. Wagner acknowledges the importance of institutions and institution-building. All individual interactions are conditioned by institutional arrangements. Still, as Wagner notes, this discussion about institutions is the domain of plausible reasoning rather than conclusive evidence. Such conceptual ‘window’ enables the development of views according to which certain forms of public ordering can indeed establish a broad and unbiased framework within which individuals can engage in their preferred activities (Wagner 2020: 153). For the seasoned reader, this might imply the type of institution-building espoused by ordoliberalism, referring to a market economy where economic activities are governed by stable and predictable constitutional rules for property, contract, and liquidity. However, readers will not find here a ready recipe about which institutional rules can facilitate private behaviours in light the ideal-type expectation that  markets tend to achieve some socially beneficial private ordering, as Wagner has in mind and the Austrians envisage.

Wagner’s exercise of ‘plausible reasoning’ is primarily an expression of general scepticism regarding the overall foresight of governments. Wagner chastises the way the state is presented by mainstream economic models as a Deus ex machina. In the mechanical view of the economy propagated by mainstream macro theories, government is seen as the ‘outside’ agency that can fix the messy reality that deviates from the idealised modelled economic performance of equilibrium. In reality, Wagner asserts, no one stands on Mount Olympus to be able to act as a ‘macro god’ rearranging society at will (Wagner 2020: 56; 154; 167).

I would argue that the government as a Deus ex machina is a powerful metaphor but can become more nuanced. In terms of knowledge and effectiveness, governments, even in Wagner’s ecological perception of the economy, do indeed resemble the Olympian gods. The Olympian gods had some superior yet still limited understanding of what was going on out there compared to mere mortals. They also had their own immoralities, caprices and conflicts within their mythological narratives. They could be swayed, flattered, placated and even deceived by astute heroes like Ulysses and Hercules or even by common people. Likewise, governments are powerful actors aided by bureaucracies, bodies of experts and big data and sensitive to the activities of special interests and public opinion; their actions are binding, authoritative and consequential on a large scale. More than us mortals, governments are indeed capable of changing system-level properties but not always the way they want to. They act in synergy with the world they want to dominate, and they may make a mess out of it. By contrast, the mainstream theories which Wagner criticises seem to foster the impression of government as an Abrahamic God: omniscient, benevolent and omnipotent. The Abrahamic God is watching everyone everywhere at the same time and he is in the position to direct each and every of us simultaneously. On that basis, Wagner could have criticized macroeconomic interventions such as those of fiscal and monetary policies for being both consequential and disruptive (cf. Trantidis and Boettke 2021) in the economic ecology.

Any evaluation of the efficacy of state interventions and institution-building can only come ex post or, in the event of a crisis, ex morte. It is impossible to draw an easy line between ‘good institutions’ and those which may restrict economic activity too much or even derail it and distort it to the extent that they may even induce a crisis. This intellectual lacuna is consistent with Wagner’s view on complexity and intellectual modesty: we can also observe market outcomes ex post. I would add that, on a larger-scale, this lack of foresight generates the tragic irony of state planning and institutional design: after a crisis happens, we are aware of facts which the protagonists of the story could not foresee. Still, envisaging and designing any set of institutions will have consequences anyway.

Still proposals for institutional design are attached to the ‘ideal type’ assumptions we make about the market and the role of government. The kind of institutional design we will opt for will be different if we assume relative coordination with some turbulence in markets (cf. Wagner) or if we assume instability and fear large-scale crises (cf Post-Keynesians). Theory then acts as kaleidoscope, a lens that skews our interpretation of past events in our effort to predict future systemic risks.

Finally, taking Wagner’s notion of entanglement further, I would argue that there is no conceptual distinction between how markets, politics and institutional design operate. Just as it is plausible to say that the complexity of economy cannot be captured by models of economic behaviour and, therefore, we cannot make accurate predictions about policy outcomes, it is equally plausible to claim that, from an entangled political economy perspective consistently applied, we cannot be fully certain about what the nature of rules should be for market actions to work towards socially beneficial coordination and outcomes. Not least because different institutions may privilege some more than others or even disadvantage a few or the many. What is more, any set of rules tends to reflect power dynamics during their conception, negotiation and enactment, rather than honest processes of logical reflection on general outcomes. Institutions are products of the circumstances of politics under power asymmetries and incomplete and asymmetrical knowledge; they are often the product of clientelistic exchange, corruption (Trantidis 2016) and social contestation. In such a context, there will still be a wide and diverse range of perceived externalities stemming from government rules and market activities, continually triggering public demands for legislation and political solutions (Trantidis 2023). These rules will be contested for embedding or generating unequal distributions of wealth and opportunity, often perceived by some as unjust or unethical. But designing rules in anticipation of their structuring effects is conditioned by power relations and knowledge limitations.

The same metaphor of governments as Olympian gods does not only accommodate information asymmetries affecting governments, but could also be useful to highlight power asymmetries among market actors: some big corporations are like mythological demi-gods and behave as such. The way markets work depends on the rules that set the terms of trade, for instance, patents, intellectual property rules, limited liability rules etc Second, these rules are shaped by power relations in conditions of informational uncertainty. Societies and governments simply do not have the foresight and benevolence of Prometheus when it comes to understanding the consequences of their institutional preferences and decisions too. An entangled political economy is characterised by informational uncertainty as well as social dissonance and power antagonisms. It is very difficult to ascertain what kind of public ordering is desirable and feasible to address situations in which market activities, including those by government and other big players, synergistically, cumulatively and perhaps unpredictably may generate unintended or unforeseen side effects.

A conceptual framework, whether it is called mainstream or heterodox, must include power, asymmetries and a broader conception of institutional externalities. There are oligopolies, cartels, clientelist exchanges, opportunistic incentives in both the public and private sector, moral hazard issues and incentives for those who lead organisations that may be detached and misaligned with the preferences of citizens and shareholders alike. There is incomplete and asymmetrical information, ‘markets for lemons’, asymmetrical bargaining power, unequal distributions of resources, unequal allocation of opportunities, behavioural biases, structural disadvantages and radical uncertainty. This is really existing capitalism. I applaud Wagner’s contribution for highlighting a key dimension of the problem – the problem of knowledge –  bringing us closer to this reality.


Aris Trantidis, University of Lincoln




Boettke, Peter J. (2012). Living Economics. Oakland, CA: Independent Institute.


Trantidis, Aris (2016). Clientelism and Economic Policy: Greece and the Crisis. London: Routledge.


Trantidis (2023). Government Externalities. Public Choice, forthcoming.


Trantidis, Aris and Boettke, Peter (2022). Macroeconomic Policy as an Epistemic Problem. Journal of Public Finance and Public Choice, 37(2): 211-231.


Wagner, Richard (2016). Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy. Cheltenham: Edward Elgar.


Wagner, Richard (2020). Macroeconomics as Systems Theory: Transcending the Micro-Macro Dichotomy. Cham: Palgrave Macmillan.


White, Lawrence (2016). The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years. Cambridge: Cambridge University Press.