HOUSE_OVERSIGHT_010978.jpg

macroeconomics (“macro”) rests on micro, the convergence axioms say only what economics has accepted implicitly since micro began. The “law of one price”, meaning market equilibrium, actually begins a century and a half earlier with Cantillon. But Jevons, in co-founding the marginalist revolution in 1871, effectively made it an axiom. I don’t want to seem to claim that the convergence axioms are safe because they are accepted. Arguments ad majoritatem or ad auctoritatem prove nothing. But markets do seem to form and hold, and the convergences seem implied. Authority and majority are sometimes right. Not all economists have agreed. There have been “historicists” and “institutionalists” who mistrust the idea of convergent tastes, and prefer to see idiosyncratic national tradition or power groups or mindsets as the prime movers in place of uniform human nature. Heinrich Schmoller, a historicist who stressed national differences, tangled with Carl Menger, an independent co-founder of the marginalist revolution in 1871, in a childish feud for which Menger was at least as much to blame. If you must answer your critics, be gracious. Thorstein Veblen, an institutionalist from Wisconsin, coined the term “neoclassicism” for what we now call marginalism. He made fun of it for missing the role of institutions in driving economies for institutional or collective goals rather than individual human ones. ] think there’s something there. My main theme in this book is growth theory at the collective scale. I argue that collective growth flourishes where laws and practices and cultures nurture and protect it. These are national institutions. New ideas, by definition, are opposite from the fungible commodities for which supply and demand meet at price equilibria. Somehow they come. Dogs bark, cats climb, people innovate. I’m with Menger and Jevons and the marginalists and human nature, but with asterisks there too. There is plenty left for historicists and institutionalists to help explain. Chapter 3: Foundations 1/11/16 7 HOUSE_OVERSIGHT_010978