It is interesting that when Luhmann discussed the economy he assumed that his description of the emergence of social differentiation was a fait accompli, which it was not, and that a clear statement concerning the role of complexity in social differentiation had been made which had not. Thus, this statement with some clarification fits into place only once we have developed such a clear description of differentiation and the role complexity plays in it.

By complexity we mean the number of possibilities from which through experience and action, we can choose--either through structural reduction or through conscious decision making.

In this sense complexity is used as a kind of variety. As I have developed it, complexity is a mechanism for creating variety. The term structural reduction is confusing at best. However, using the term complexity as a special kind of hierarchical ordering the concept Luhmann calls structural reduction is essentially what Simon calls near decomposability, or the property of complex hierarchical order through which a single level in a complex system interacts with only a selected portion of the variety in its environment.

The problem of choice, however, cannot be described in terms of Simon's description of complexity because it is a view from the inside out Robert Rosen has developed a picture of complex systems as they might be seen from the outside looking in. As he explained it, a system is Complex if we can interact with it at several different levels. When we analyze any complex system we use a set of measuring instruments. Different sets of instruments will give different partial descriptions of the system. The difference between the system as described by one set of instruments and as it exists in reality is called error. The descriptions given be different sets of measuring instruments are called relative descriptions. Because, as we have seen from Simon's description, each level in a complex system has a certain amount of autonomy, it is not possible to obtain a complete description of a system by concantinating relative descriptions. However the error developed by a set of measuring instruments, also due to the same semi-autonomy, may not be significant for the purposes we have in mind. The average person, facing a sea of environmental variety, can apply a number of sets of social, political, and ideological instruments to his understanding of his environment and thus will develop a number of differing relative descriptions. This is the source of variety from which conscious choosing is made. As Luhmann put it, "Complexity in this sense increases with the functional differentiation of society and the separating out of different possibilities--in our case through external differentiation and functional specification of the economy." The concept of "contingency" takes on a special meaning in Luhmann's description of economic systems. Among the mechanisms available to human beings for the development of relative descriptions of the environment is imagination. Through this, which is free to roam because of the contingency of the economic system, new and unique scenarios can be developed in the mind and criticized mentally. Luhmann noted that e economic system acquires new possibilities through different ways of combining means and endespecially by broadening the period of time over which the possibility of such combinations can be guaranteed. This leads to an increase in the selectivity of the decisions and in the awareness of their contingency. They are reviewed and compared as investments.

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