Why should economics demand what harder sciences do not?3 November, 2016 at 19:31 | Posted in Economics | 7 Comments
Although economics main concern is with aggregates, there has predominated in the discipline an atomistic approach. If you want to know what consumers do, you model the individual consumer behavior and assume it represents the behavior of the typical consumer. The same applies to producers: the theory of the firm is the basis for the aggregate supply function. Moreover, it has been proposed that the actual economy can be read as if it were acting out the maximization of the utility function of a single, immortal representative agent. This excludes per se any possibility of coordination failure. But many problems in the economy arise precisely from coordination failures and heterogeneous behavior by economic agents.
Economics deals with the study of the economic system. Why not starting by studying the economy as a system? …
Change the departing point in economics. It should be not the individual but the economic aggregates. These aggregates are the result of the behavior of many agents, all interacting with one another at once. So, collective behavior and not individual behavior should be the departing point of economic analysis.
Orthodox economics demands for microfoundations as a necessary condition in macroeconomics. But, for instance, thermodynamics and chemistry do not claim for a micro theory. All biological creatures are made up of particles. This does not mean that the natural place to start in building biology is to start with particle physics. Botanists study certain characteristics of the behavior of plants without knowing the exact biochemical mechanism behind them. Zoologists study anthills without having to resort to the individual behavior of ants. It is well known that relativity theory (macrophysics) and quantum mechanics (micro-physics) are mutually inconsistent. Why should economics demand what harder sciences do not?