On the Reappraisal of Microeconomics

On the Reappraisal of Microeconomics

Economic Growth and Change in a Material World

Robert U. Ayres and Katalin Martinás

The conventional utility-based approach to microeconomics is now nearly a century old and although frequently criticised, it has yet to be replaced. On the Reappraisal of Microeconomics offers an alternative approach that overcomes most of the objections to orthodox theory, whilst offering some unique additional advantages.

Chapter 6: Dynamics

Robert U. Ayres and Katalin Martinás

Subjects: economics and finance, evolutionary economics, environment, ecological economics


6.1 INTRODUCTORY REMARKS When an economic agent experiences wealth loss, for any reason that is not purely accidental – an ‘act of God’ – it has to change its economic behavior to avoid repeating the same behavior and making the same mistakes. Learning and adaptation, in this sense, are necessary to avoid extinction (i.e. disappearance from the economic system). The simplest response by a firm is simply to change its stocks of goods, whether commodities – if the firm is a trader – or perhaps replacing obsolete capital equipment, in the case of a manufacturer. The latter would also necessitate a corresponding change in procedures and labor skills needed. A second adaptation would be to modify the rules-of-thumb the firm uses to make decisions, notably by modifying its decision rules with respect to pricing and production levels (in the case of a manufacturer). This is a straightforward kind of learning. These adaptations are expressed in the Ltensor. Recall that L summarizes the expectations of the agent with respect to future possibilities for buying, selling or production. Roughly speaking, it corresponds to expected demand. A third adaptation – often undertaken out of desperation when other adaptations prove insufficient – is to undertake a radical innovation of some sort. We discuss radical innovations later. The remainder of this chapter deals only with dynamics and incremental technical change in the sense of learning-bydoing on the part of both workers, managers and designers. If the agent is a trader who is a price taker with only one possible trade...

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