The macrofoundations of micro

Abstract

In the opening chapter of his pathbreaking textbook, Paul Samuelson reproduced a picture from N. R. Hanson's Patterns of Discovery (1961). From one perspective, it looked like a picture of antelopes; from another perspective, it looked like a picture of birds. The point of the example was that the same reality can look fundamentally different depending on one's perspective and that revolutions in a discipline occur through these changes in perspective. Perspective is fundamental to understanding theories, because, ultimately, any theory is built on a vision – a way of putting reality together. That vision guides one in choosing assumptions and in interpreting results. Vision allows one to make the leap of faith necessary to believe that one's “theory” is more than a jumble of meaningless tautological equations. It was Keynes's vision that made Keynesian economics “spread like a disease among South Sea Islanders” (Samuelson, 1964), and it was Lucas's vision that made New Classical economics spread like the flu virus in a university. (In both cases economists over 50 were immune.) This paper argues that such a change in perspective is currently underway in macro and that a new Post Walrasian perspective which requires a “macrofoundations of micro” is emerging. This new perspective changes the nature of the macroeconomic debate and provides a theoretical foundation for a non self-adjusting macroeconomic revival, in which the Walrasian unique equilibrium model is seen as a special case of the more general Post Walrasian multiple equilibria model.

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