The Microfoundations Delusion

The Microfoundations Delusion

Metaphor and Dogma in the History of Macroeconomics

J. E. King

In this challenging book, John King makes a sustained and comprehensive attack on the dogma that macroeconomic theory must have ‘rigorous microfoundations’. He draws on both the philosophy of science and the history of economic thought to demonstrate the dangers of foundational metaphors and the defects of micro-reduction as a methodological principle. Strong criticism of the microfoundations dogma is documented in great detail, from some mainstream and many heterodox economists and also from economic methodologists, social theorists and evolutionary biologists. The author argues for the relative autonomy of macroeconomics as a distinct ‘special science’, cooperating with but most definitely not reducible to microeconomics.

Chapter 6: ‘Microfoundations’ in the literature of economics, part II: 1975–2012

J. E. King

Subjects: economics and finance, history of economic thought, post-keynesian economics

Extract

6.1 INTRODUCTION We saw in the previous chapter that there was no coherent, generally accepted microfoundations project in 1975, when the International Economic Association held its conference on the issue (Harcourt 1977). Within a decade all this had changed, and there were two such programmes, both apparently thriving. The first was the real business cycle project, which assumed continuous market-clearing (in product and labour markets), and drew its RARE (representative agents with rational expectations) microfoundations from Frank Ramsey’s (1928) model of optimum saving in a socialist economy. The second was the New Keynesian project, which had the same RARE microfoundations but relied upon wage and price rigidities to rule out continuous market-clearing in the short run. Like the real business cycle theorists, however, the New Keynesians endorsed the Solow neoclassical growth model, which committed them to market-clearing in the long run. The first real business cycle papers were published as journal articles in the early 1980s, though in some cases they had been circulated as National Bureau of Economic Research working papers since 1980, or slightly earlier. Thus 1982 is something of a milestone in the history of microfoundations. The first New Keynesian papers were published at the same time, or even a year or so earlier. The shared microfoundations principle of the two projects was very widely adopted, so much so that in 1987 Robert Lucas – who had by now abandoned business cycle theory in favour of research into the theory of economic growth – could proclaim the death of...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information