Please Note:
The author of this article takes no credit for the ideas mentioned
though there are his own ideas involved too. The exact work where the
fundamental idea behind this article was present, is not in possession of the
author, it shall be duly acknowledged as and when the author finds it or
recalls about it.
Economic theorizing (except for some heterodox schools), follows
the empirical method of investigation, primarily subjected to the principles of
logical consistency and empirical falsification. In such a methodological set
up, it’s imperative to understand the definitional categories of Economics so
as to understand the subject and the ongoing research properly.
The definitions of Macroeconomics and Microeconomics are one
such area. Historical developments and the contribution of numerous Economists
have helped develop a particular definition of these terms. It is possible to
understand them in one more way- as the results of conscious and unconscious individual
decision making.
In Microeconomic analysis, an economy is essentially disaggregated into individual units, at the most being grouped into a non-aggregate group- such as industry, market, etc. The individuals are assumed to follow certain behavioural assumptions such as rationality, transitivity, etc. and are expected to do so under certain environmental settings such as under a particular market structure, under particular macroeconomic environment.
Methodological individualism thus considers an individual
consumer or a producer as the fundamental unit of analysis. The results of this
rationalized individual’s decision making through her interaction with other similar
individuals produces Microeconomic outcomes. These outcomes are mainly in terms
of Price, Demand and Supply generated in a market (whether labour, product or factor).
What is to be noted here is that these economic outcomes are the result of conscious decision making by these
individuals. The individuals consciously act and react in a particular manner
which gives rise to their anticipated results. For e.g. when buyers and sellers
negotiate over price, the outcome is something that is a result of their
conscious efforts to reach that result- otherwise they wouldn’t get into it in
the first place.
Contrast this with aggregated outcomes- as analyzed by
Macroeconomics. Numerous individuals are aggregated into broad units of
analyses- such as Households, Firms, Government and Foreign sector or in terms
of markets- such as labour, goods, money and assets markets. The interaction of
‘aggregated’ individuals in these markets cuts across a hugely heterogeneous set
of objective functions of individuals- all undertaking conscious rationalized
decision making to achieve their desired economic outcomes.
Yet, what is surprising is that the macroeconomic outcomes produced
by individual decision making units through their interactions in these
aggregated markets are not at all produced by any conscious efforts to achieve these
outcomes. Macroeconomic outcomes are primarily in terms of Output, inflation,
unemployment, interest rate, exchange rate, price level, etc. None of these macroeconomic
outcomes (produced by the macroeconomy) is a part of a microeconomic unit’s
objective function, yet the diverse and theoretically infinite objective
functions (due to subjective, non-comparable preference rankings of
individuals) somehow fulfil the macroeconomic objective function- viz. of price
and output stability and other such macro-policy objectives.
Macroeconomic outcomes are thus an unconscious result of
conscious individual decision making and economic activity. This difference of the
type of human consciousness that is associated with macroeconomics and microeconomics
may open up new doors of understanding the role that Analytical Philosophy (and
especially ontology) can play in appreciating better the beauty and breadth of the
discipline of economics.
