Treating Macro Theory as Systems Theory: How Might it Matter?
TL;DR: In this paper, a systems-theoretic approach to the micro-macro relationship is proposed, which treats macro theory as a form of systems theory where the behavior of the system has properties that are not reducible to properties of individual elements within that system.
Abstract: Standard macro theories have the same analytical structure as their micro counterparts. Where micro theories work with equilibrium between supply and demand for particular products, macro theories work with equilibrium applied to aggregates of products. This common approach treats the micro–macro relationship as scalable, with macro variables being aggregations over micro variables. In contrast, we pursue a systems-theoretic approach to the micro–macro relationship. This relationship is not scalable and rather entails a disjunction between micro- and macro-levels of theory. While micro phenomena are still susceptible to choice-theoretic analysis, macro phenomena are products of ecological interaction and so entail emergent phenomena. Our alternative approach treats macro theory as a form of systems theory where the behavior of the system has properties that are not reducible to properties of the individual elements within that system. Besides sketching this alternative approach, we examine some of the different insights this approach offers into such topics as unemployment and stabilization.
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TL;DR: In this paper, a generic decentralized self-regulatory framework is proposed for matching supply and demand in smart-grid systems, which is shaped around standardized control system concepts and Internet of Things technologies.
28 citations
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TL;DR: New Austrian macro as mentioned in this paper is a style of economic theory that combines traditional Austrian insights and formulations with new analytical formulations that were never part of the Austrian tradition but which can multiply the analytical oomph of that tradition.
Abstract: This essay sketches some contours of what we think can reasonably be called New Austrian macro theory. By New Austrian, macro we mean a style of theorizing that incorporates the core of traditional or Old Austrian macro and pushes that core in new directions by using new analytical tools and methods. We would note that New Austrian is not some invention or construction de novo, but is a product of blending some traditional Austrian insights and formulations with new analytical formulations that were never part of the Austrian tradition but which can multiply the analytical oomph of that tradition. In this essay, we explain that the traditional Austrian macro theory suffers not from analytical wrong-headedness but from an underdevelopment of those complementary pieces of intellectual capital that would render Austrian macro once again a significant player in the efforts of economists to theorize about the properties of economic systems in their entirety.
17 citations
Cites background or methods from "Treating Macro Theory as Systems Th..."
...…co-development: both social structure and human agency possess their own sui generis, emergent causal powers, so although each depends on the other neither has ontological or analytical priority (Lewis 2008: 844-51; Lewis and Lewin 2015: 10-12; Wagner 2012a: 1- 2, 2012b; Veetil and Wagner 2015)....
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...A system is, in Hayek’s words, “a coherent structure of causally connected … parts” (Hayek n.d.: 4; also see Page 2011: 24 and Veetil and Wagner 2015).2 Second, the interactions between the elements, and therefore the system’s structure, can be described in terms of sets of rules....
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TL;DR: In this paper, a workhorse model with firms on a production network is presented to explain why some prices temporarily decrease in response to money injection, and also provide a sketch of other potential applications of the production network model.
Abstract: Austrian macroeconomists of the interwar period saw the economy as a complex adaptive system, in which macroeconomic variables emerge from the interaction between millions of purposefully acting agents. Recent advances in computation technology allow us to build empirically salient synthetic economies in silico, and thereby formalize many Austrian insights. We present a workhorse model with firms on a production network. Macroeconomic variables evolve through the interaction between micro-economic decisions. We use the model to explain why some prices temporarily decrease in response to money injection. We also provide a sketch of other potential applications of our production network model.
10 citations
TL;DR: New Austrian macro as mentioned in this paper is a style of economic theory that combines traditional Austrian insights and formulations with new analytical formulations that were never part of the Austrian tradition but which can multiply the analytical oomph of that tradition.
Abstract: This essay sketches some contours of what we think can reasonably be called New Austrian macro theory. By New Austrian, macro we mean a style of theorizing that incorporates the core of traditional or Old Austrian macro and pushes that core in new directions by using new analytical tools and methods. We would note that New Austrian is not some invention or construction de novo, but is a product of blending some traditional Austrian insights and formulations with new analytical formulations that were never part of the Austrian tradition but which can multiply the analytical oomph of that tradition. In this essay, we explain that the traditional Austrian macro theory suffers not from analytical wrong-headedness but from an underdevelopment of those complementary pieces of intellectual capital that would render Austrian macro once again a significant player in the efforts of economists to theorize about the properties of economic systems in their entirety.
5 citations
TL;DR: In this article, an open-ended evolutionary macroeconomics (OEE) framework for macroeconomic analysis is proposed. But, unlike DSGE, the OEE framework does not assume that macro-level derivations reflect systemic equilibrium among the micro-level primitive sources of action.
Abstract: DSGE modeling remains the workhorse of contemporary macroeconomics despite a growing number of critiques of its ability to explain the aggregate properties of an economic system. For the most part, those critiques accept the DSGE presumption that traditional macro data are primitive, causal data. This leads to a stipulative style of analysis where macro variables are explained in terms of one another. In contrast, we set forth an OEE framework for an open-ended evolutionary macroeconomics. Within this framework, systems data are not primitive, but are derived from prior micro-level interactions without any presumption that those macro-level derivations reflect systemic equilibrium among the micro-level primitive sources of action. We explore some contours of an OEE model by placing coordination games within an ecological setting where there is no agent who has universal knowledge relevant to that ecology of games.
5 citations
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TL;DR: In this paper, the authors developed an evolutionary theory of the capabilities and behavior of business firms operating in a market environment, including both general discussion and the manipulation of specific simulation models consistent with that theory.
Abstract: This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)
22,566 citations
TL;DR: In this paper, a model of long run growth is proposed and examples of possible growth patterns are given. But the model does not consider the long run of the economy and does not take into account the characteristics of interest and wage rates.
Abstract: I. Introduction, 65. — II. A model of long-run growth, 66. — III. Possible growth patterns, 68. — IV. Examples, 73. — V. Behavior of interest and wage rates, 78. — VI. Extensions, 85. — VII. Qualifications, 91.
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TL;DR: In this paper, it was pointed out that many of the current disputes with regard to both economic theory and economic policy have their common origin, it seems to me, in a misconception about the nature of the economic problem of society.
Abstract: Many of the current disputes with regard to both economic theory and economic policy have their common origin, it seems to me, in a misconception about the nature of the economic problem of society. This misconception in turn is due to an erroneous transfer to social phenomena of the habits of thought we have developed in dealing with the phenomena of nature.
8,226 citations
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TL;DR: Prospect theory as mentioned in this paper is an alternative to the classical utility theory of choice, and has been used to explain many complex, real-world puzzles, such as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days.
Abstract: This book presents the definitive exposition of 'prospect theory', a compelling alternative to the classical utility theory of choice. Building on the 1982 volume, Judgement Under Uncertainty, this book brings together seminal papers on prospect theory from economists, decision theorists, and psychologists, including the work of the late Amos Tversky, whose contributions are collected here for the first time. While remaining within a rational choice framework, prospect theory delivers more accurate, empirically verified predictions in key test cases, as well as helping to explain many complex, real-world puzzles. In this volume, it is brought to bear on phenomena as diverse as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days. Theoretically elegant and empirically robust, this volume shows how prospect theory has matured into a new science of decision making.
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