Microfoundations Reconsidered

Microfoundations Reconsidered

The Relationship of Micro and Macroeconomics in Historical Perspective

Pedro Garcia Duarte and Gilberto Tadeu Lima

The highly regarded contributors to the book argue that the standard narrative of microfoundations is likely to be unreliable. They therefore re-examine the history of the relationship of microeconomics and macroeconomics, starting from their emergence as self-consciously distinct fields within economics in the early 1930s. They seek to go beyond the conventional history that is often told and written by practicing economists. From different perspectives they challenge the association of microfoundations with Robert Lucas and rational expectations and offer both a more complete and a deeper reading of the relationship between micro and macroeconomics.

Chapter 2: From Foundational Critique to Fictitious Players: The Curious Odyssey of Oskar Morgenstern

Robert Leonard

Subjects: economics and finance, history of economic thought, radical and feminist economics


Robert Leonard* 1. INTRODUCTION For the contemporary economist, the names of John von Neumann and Oskar Morgenstern are so tightly associated together that it is difficult to prise them apart. By virtue of their association with the creation of game theory, the two have become somehow “fused” together in our perception, and the considerable differences between them lost to view. Nonetheless, while we refer unthinkingly today to the “von Neumann-Morgenstern utility function”, or to their joint authorship of the Theory of Games and Economic Behavior ([1944] 1947), the fact remains that while one was a Hungarian mathematician of extraordinary calibre, the other was a philosophically-inclined Austrian economist with little or no mathematical training. In what follows, I would like to consider the life and work of that economist in particular, Morgenstern, paying special emphasis to the role of foundational critique in the Vienna and early Princeton phases of his career. This will also allow us to appreciate his distinct character and outlook, and the considerable intellectual distance he travelled in becoming a co-author of von Neumann’s. From the mid-1920s until 1938, Morgenstern was active in a Vienna that bristled with intellectual activity and political tension. Lapsed Austrian economist, Othmar Spann, preached a form of Romantic idealism, intentionally whipping up his students against rationalist economics, against Marxism and against Freud. Students participating in Ludwig von Mises’ seminar encountered a resolute attachment to political liberalism; strong views on the nature, potentialities and limits of economic theory; and scepticism concerning the potential role...

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