Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics

Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics

Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics

Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics

Synopsis

By examining the development of economics in the 20th century, this book argues that the breakthroughs of post WWII general equilibrium theory and its rejection of utilitarianism and marginal productivity have been misunderstood. Mandler maintains that although earlier neoclassicism deserved criticism, current theory does not adequately address the problems the discarded concepts were designed to solve, and that intractable dilemmas therefore appear.

Excerpt

Neoclassical economics advances a distinctive understanding of the social world. in its first decades, this fact was well understood; early versions of neoclassicism explicitly maintained that the market offers consumers and firms manifold opportunities for choice and that individuals select actions so as to maximize the quantity of pleasure they experience. in detailing this vision, economists of the late nineteenth century liberally applied the preferred mathematical technique of their day, the differential calculus, and brought about the marginal revolution. Much of the theory they invented still guides empirical applications and is taught to undergraduates.

Both the conceptual worldview and the mathematical particulars of neoclassical economics were sharply criticized as the theory rose to dominance. Partly in response, economists since the 1930s have tried to construct a more plausible theory of markets that does without the assumptions and tools that drew analytical fire. Calculus, marginal productivity, hedonistic decision theory, and utilitarianism were excised. This book evaluates the attempt to purge neoclassical economics of its reliance on these controversial precepts. I argue that the endeavor exposes the characteristic dilemmas of economic theory and does not achieve a trouble-free gain in generality.

Like most students, my introduction to economics in college contained an ample dose of early neoclassical orthodoxy. I learned, for example, that marginal productivity is analytically indispensable to economics, and therefore, since the assumption that factors have well-defined marginal products is an empirical claim, that neoclassical theory is committed to a substantive view of economic reality. Consequently, I was astonished in graduate school by the generality of the Arrow-Debreu account of economic equilibrium. Many of the questionable and empirically dubious features of early neoclassical theory had been eliminated. Particularly in its more refined versions, the general equilibrium model assumes that individuals obey only the most limited dictates of rationality and does away with the entire . . .

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