Guest post by Predrag Rajsic via The Mises Institute.

If you are taking or have taken some of the typical courses in economics, it is quite likely that you asked yourself questions like the following: If an economic model is not like the real world, why should I trust the results of that model? One of the answers I would often get when posing this question goes something like this: Of course the model is not like the real world; it is not supposed to be like the real world. If it were, then it would not be a model!

This response can leave one feeling intellectually inferior or incapable of abstract thinking. One may get the impression that there is something obvious that he or she is missing. Sometimes, the answer would go a bit further: models are simplified representations of reality that we use to better understand that reality. This answer is somewhat more polite, but it still does not tell us how we determined which features of reality were not important enough to be included in the model. Building a model in this way also seems to imply that we already understand the elements of reality and how they are interrelated.

If none of these answers left you entirely comfortable with the currently predominant, Walrasian approach in economics, you may want to look into the works of some of the Austrian economists.Ludwig von Mises, Friedrich Hayek, and Murray Rothbard were the leading figures in this school of thought in the 20th century. Scholars like Mises, Hayek, and Rothbard showed that there are, in all likelihood, more robust descriptions of markets than those contained solely in mathematical general-equilibrium models.

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