Price rigidities of all kinds are common in real economies. The nodal point in the macroeconomics, however, is not their existence, but rather that even if they did not exist, our economies would not turn into the kind of Panglossian full employment equilibrium Walt-Disney-fiction-world that neoclassical macroeconomists seems to take more or less for granted....Lars P. Syll's Blog
Neoclassical “Walt Disney” economics
Lars P. Syll | Professor, Malmo University
My comment there:
Representative agent modeling is based on methodological atomism, which treats individuals as atoms in a physical system. This is overly simplistic in biological and social systems, which are complex adaptive systems rather than mechanical. Such modeling can never serve as anything more than a simple heuristic device.
Modeling based on the assumption of a representational rational agent pursuing maximum utility involves the further assumption of Bentham’s hedonistic utility theory based on a calculus of “utility” defined as material satisfaction. J. S. Mill pointed out the insufficiency of that stance in Utilitarianism: “It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question.”
See The Romantic Economist: Imagination in Economics by Richard Bronk, London School of Economics and Political Science, published by Cambridge University
Actually Tom it goes much farther back, to Epicureanism which also goes by another name I can't remember at the moment. The notion that everything is a collection of atoms is an idea that has been with us since before Aristotle and made a big resurgence (in it's original form) towards the mid 17th century and has been alive ever since then (Hobbes was one of its followers), I believe Epicureus/Democritus et al were the ancient "ionians" but I'm not sure of that.
ReplyDeleteYes, Epicurus (341—271 BCE) updated the atomism of Democritus (460—370 BCE) in response to Aristotle (384-322 BCE) and his conception of physics. Leucippus (5th C. BCE) appears to have been the originator of atomism but what we know of him is through Democritus. Atomism seems to be older in India but it is unknown whether this influenced the Greeks. The Greek and Indian notions of atomism meet in the Islamic thought, but atomism never became popular in Islam due to doctrinal concerns.
ReplyDeleteAncient atomism as a materialistic philosophy was largely eclipsed in the West by Aristotle's physics, although it was known through Aristotle's criticism of it. It did not emerge as a contender until the 16th century.
Atomism didn't really come into its own as the dominant scientific theory until the 19th century, when the math was developed. Neoclassical economics was initially modeled on 19th century physics as way to mathematize classical economics.
Price rigidities of all kinds are common in real economies.
ReplyDeleteThe chief one is the usury we pay for the "credit" that is used to drive us into debt; it is priced in nominal, not real terms. Thus deficit spending (money creation) by the monetary sovereign is especially needful during recessions.