The Call for an End to the Microfoundations Dogma – by John King

November 13, 2012

Author Articles, Economics Finance

As the Austrian economist Stephan Schulmeister recently noted, the politics of austerity in the Eurozone are dominated by what the Germans call ‘Swabian housewife logic’. If any individual Swabian husband is spending more on drink than his pay-packet permits, it makes sense for his wife to rein in his expenditure and keep the family out of debt. If, however, such austerity is imposed on ALL Swabian husbands at the same time there will be unforeseen macroeconomic consequences along the lines that Keynes set out in the General Theory. Total consumption spending will fall, and with it the demand for labour. Many Swabian housewives will find their husbands out of a job and the family finances in ruins. To deny this entails a (very damaging) fallacy of composition.

My book, The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics, was written in protest against the way in which mainstream macroeconomics systematically denies this important point and instead promotes Swabian housewife logic as the basis for both theory and government policy. The dogma that macroeconomics must have ‘rigorous microfoundations’ requires us to adopt a micro-reduction strategy that has so often failed when attempted in other areas of scientific research. If it were to be made compulsory for economists it would bring about the euthanasia of macroeconomic theory. And there are important practical consequences. Since it has been imposed on the hapless PIIGSS of the Eurozone, Swabian housewife logic has inflicted serious harm on the poor and the vulnerable, and threatens to turn the Great Recession that began in 2007-2008 into something much worse. I now spell PIIGSS with a double S, as Slovenia has recently joined the club. Who knows who the next victim will be?

I begin the book by taking issue with the spatial metaphor on which the case for microfoundations rests, and argue that in economics the relationship between macro and micro should be seen as a horizontal, not a vertical, one. The photograph on the cover makes the point very nicely: a bridge is NOT a foundation. Not, at least, since the early modern period, when the beautiful water tower in the Dutch town of Sneek was constructed. Incidentally, I came across the picture in 2011 while leafing idly through the on-board magazine on a German train. Serendipity in motion!

In the book I draw on an extensive literature in the philosophy of science to show how micro-reduction has failed, over and over again, in other areas of scientific thought. I make special reference to the unsuccessful ‘methodological individualism’ project in the social sciences in the 1950s and 1960s, and to Richard Dawkins’s more recent ‘hierarchical reductionism’,  an abortive attempt to reduce the life sciences to propositions about the ‘selfish gene’. (I have stolen Dawkins’s title, but definitely not his ideas). I then explore the emergence of support for microfoundations in the literature of macroeconomics since the 1930s, distinguishing authors who supported the dogma without using the term from those who used the term without intending to support the dogma. I have a lot to say about the opponents of microfoundations, inside and (especially) outside the mainstream: Post Keynesians, institutionalists, Old Keynesians and even some Austrians. On this issue there are some surprises: Robert Solow is on the side of the angels, but so too is Milton Friedman, while many heterodox economists who really should have known better have instead given inadvertent comfort to the mainstream enemy. I show that most economic methodologists have been critical of microfoundations, and for very good reasons, but they have been very largely ignored by economic theorists of all persuasions. I conclude the book by reiterating the case for a (semi-)autonomous science of macroeconomics, whose practitioners will cooperate with their microeconomist colleagues without being subservient to them.

I hope that readers will agree with me and do what I suggest in the final paragraph of the book: send your DSGE texts to the science fiction – or science fantasy – shelves of your local library and read up on some of the real (Post Keynesian) macroeconomics set out by recent Elgar authors like Paul Davidson  and Eckard Hein and Engelbert Stockhammer. Above all, be happy: the death of the microfoundations dogma will make the world of economics a much better place.

John King is Professor of Economics at La Trobe University in Melbourne, where he has taught since 1988. Recent publications include Nicholas Kaldor (2009) and (as editor), The Elgar Companion to Post Keynesian Economics (second edition, 2012). His hobbies include birdwatching, bushwalking and listening to jazz.

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4 Comments on “The Call for an End to the Microfoundations Dogma – by John King”

  1. Sean Says:

    Where can i buy this book? Amazon has it for $117. That doesnt sound right.

    Reply

Trackbacks/Pingbacks

  1. Free Markets, Say’s Law and the Failure of Keynesian Economics – by Steven Kates | ELGARBLOG - November 28, 2012

    […] The Call for an End to the Microfoundations Dogma – by John King (elgarblog.wordpress.com) […]

  2. The Call for an End to the Microfoundations Dogma - by John King | Oikonomia | Scoop.it - February 13, 2013

    […] As the Austrian economist Stephan Schulmeister recently noted, the politics of austerity in the Eurozone are dominated by what the Germans call ‘Swabian housewife logic’. If any individual Swabian …  […]

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