Is there Macroeconomics?
The claim of Austrian school economists that “there is no macroeconomics” because the political-economic system at the macro level is explainable in terms of the aggregated attributes and activities of political-economic agents at the micro-level of that system is false, silly, and ignores the findings of many other sciences! That’s because macro-level behavior includes structural and holistic properties of these systems that are not explainable by individual level phenomena or aggregations of them.
The whole thrust of contemporary complexity and complex adaptive systems theory along with findings dominant in philosophy, in chemistry, in biology, in social sciences other than economics, and even in some parts of physics no longer supports the reductionism some Austrians defend when they say “there is no Macro”, and imply that only the individual level of economic interaction is real. So, I think they need to get over methodological individualism and move on. Maybe reading Harold Morowitz’s The Emergence Of Everything, will help them do that. Or maybe Popper and Eccles The Self and Its Brain, can help them. Or perhaps John Holland’s Emergence, can break the thrall that holds them. Or Alicia Juarrero’s Dynamics in Action, might be the key to freeing them from the mental chains that bind their thinking. There are any number of books that can do this for them. But I’m afraid reading Mises, Rothbard, and most of Hayek will not help much.
However, later in life, Hayek came to believe in emergence, as did his friend Karl Popper, who earlier had strongly supported the philosophical position of methodological individualism. However, there’s a fundamental contradiction between methodological individualism, the basis for the claim that “there is no macro”, and the notion of emergence.
Political systems with their institutions, including sometimes, formal government emerge from social interaction among human beings. Formal Governments may seem to be different because sometimes those who run them may seek to impose institutional arrangements that are inconsistent with the evolved emergent patterns of society. However, this is a separate issue from the issue of whether the macro-level political economy imposes real constraints and causal influences on individuals interacting with the higher level macro system. As soon as one recognizes that this kind of influence is a fact, the possibility of an economics dealing with the macro level, independent of its micro-level theory, becomes very real.
Once we recognize this possibility, we have to start asking questions about macro statics and macro dynamics, the tendencies of the macro system over time, and how these tendencies may be changed for good or ill by human action. We have to recognize that, contrary to the “Austrian” position, there is macroeconomics of both conservative and progressive varieties!
The conservative position is that human intervention at the macro level should be minimized because our knowledge cannot be as good as market signals in telling us how to act upon that system. That is, our knowledge can’t be as good as the market’s. That is the position articulated and defended by Hayek.
But the progressive position is that we can affect the macro system in a beneficial way, if we implement policies that support tendencies toward free self-organization by individuals in shaping the future. In addition, modern social dynamics has shown time again that markets are unstable because participants in them often have an interest in subverting them and undermining the level playing fields required for the market system. Markets are Promethean Complex Adaptive Systems (PCASs), in the sense that real world markets are not classical free markets, but CASs whose human and institutional agents are always trying to subvert them in order to exert their own “god-like” mechanistic control over how they work.
So, the longer term tendencies of unconstrained capitalism are away from truly free markets and democracy, and toward oligarchy, plutocracy, lemon socialism, kleptocracy, and eventually fascism. And further, our knowledge of social and political dynamics may well be good enough to stop this kind of evolution, and to use productive forces to enhance democracy, open society, and real, rather than just formal, individual liberty. But I’ll leave discussion of this larger question for other posts.
(Cross-posted from Correntewire.com