A system is a set of elements which are connected in particular ways. Herbert Simon argued that complex systems were likely to be hierarchical, with one set of connections serving as an element at the level above; and the evolution of the universe seems to exemplify this principle of system building. The development of economic systems also appears to follow this principle, but (partly because of the role of intentionality and attempts at deliberate design) they may be less decomposable – which can be a source of problems. Human brains are well adapted to the creation of knowledge by forming representations as locally-serviceable structures of relationships, and what representations are formed depends on context. The division of labour, by providing close focus in differentiated contexts, accelerates the growth of knowledge, and the organization – partly deliberate – of contexts is an essential feature of economic development. Penrose’s theory of the firm is the outstanding exposition of this process at the level of the firm, and also explains differentiation between firms in an industry, which was an essential feature of Marhall’s theory. Specialistion entails integration; this role is routinely assigned to markets, but these too are systems, each shaped by those who expect to gain most benefits from using it. As individuals are greatly assisted by an ‘external organization’ of institutions which economise on cognition, so each firm develops an external organization, which for some entails close collaboration in developing and integrating highly-specific goods and services. Since all knowledge and skills are domain-limited, it is subject to unanticipated disruption; but reconstructing knowledge may be difficult for individuals, and even more so for formal organizations with well-established procedures for integrating many kinds of knowledge on assumptions which have now been invalidated.