Re: Holistic properties & National Accounting

["Per Gunnar Berglund" <pgb@xxxxxxxxxxxxxxxxxx>]

In reply to Bruce McFarling and Harry Veeder:

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Bruce wrote:
> I would disagree with the assertion that individuals in
> organisations can safely be assumed to be utility maximising,
> barring strong restrictions on the economic behavior under
> consideration, and as pkt subscribers may be aware I argue that
> these restrictions make utility maximisation inappropriate as
> general microfoundations for Post Keynesian macroeconomics.

Per:
    I would reverse this, and say that there is a need for macrofoundations
for microeconomics. As I tried to explain by a simple arithmetical example
(the apples-and-pears exercise), the whole precedes the parts when taking a
holistic view. The properties of the "microeconomic" parts are defined only
in relation to the "macroeconomic" whole.
    Utility maximisation does not "prove" anything as such, about the system
properties or whatever. The outcome of utility-maximising behaviour is
wholly dependent of what you put into the utility functions. Of course,
utility functions are a theoretical construct, and non-observable. By
axiomatically assuming that people maximise their utilities, we can at least
say something about the intra-personal utility composition, by studying the
preferences as "revealed" in actual economic behaviour. This is not much,
but it is a good starting-point for further inquiry.
    Moreover, utility maximisation is a highly reasonable assumption. (What
else could we reasonably assume? That people don't try to make the best out
of their present situation? Clearly not.) Since it is reasonable, we would
expect our macroeconomic measures to be consistent with the assumption, and
this would imply "plutocratic" weighting for the intra-personal
measurements.

Bruce went on and asked:
> What is the avenue by which the emergent properties of the economic
> system will be reflected in a quantity index *however constructed*?

Per:
    Discussing the production and consumption of apples-as-such, and of
pears-as-such, may be appropriate, interesting and valid. But when it comes
to assessing the output of the orchard, and the diet of the population, the
apples and pears must be viewed in the light of the general apples-and-pears
production and fare.
    From a dietary point of view, we would take interest in the nutrition
contents of the apples-and-pears diet. From an economic point of view, we
should assess the economic volume of the apples-and-pears.

Harrry then wrote:
For discussion purposes, let me define an "organization" to be a set of
individual utility functions which can be combined without fear of
contradiction. "Emergent properties" would then appear, by definition,
across organizations whenever their different utility functions could not
be summed without contradiction.

This approach means individuals can be treated as mini-organizations and
it means the growth of an "organization" can be defined as a process of
combining *non-contradictory* utility functions of individuals and
organizations.

Per:
    I am not sure what you mean by "contradiction" here. If I want this, and
you want that, and either this or that must prevail, the outcome must depend
on our relative resources to get our will through. The aggregate outcome,
thus, will depend on both personal will ("utility functions") and personal
resource access ("income distribution"). This is the "dog-eat-dog" principle
underlying plutocratic weighting, which of course has very little to do with
social utility assessment.
    If we are to assess the social utility of the "dog-eat-dog", or "you
win, I lose" outcome of the actual process of economic activity and income
distribution, we must try to value how much your gain is worth in terms of
my loss, if you see my point. Clearly the plutocratic principle is invalid
in this context. Instead we would search for some democratic, or needs-based
principle for what is equitable and how much equity is lost by the (usually)
unfair actual outcome as compared with the socially optimal, or "most
righteous" outcome.

Harry again:
In fact, if one adopts emergent analysis the struggle to find
the ultimate or the best foundations of micro economics becomes
pointless. The main task is to identify the logical limitations
of each approach as they are applied to different areas of the
economy. The micro/macro dichotomy is a manifestation of the metaphysics
of reductionism and is inconsistent with the metaphysics of
emergence.

Per:
    I think you are perfectly right here. We cannot stand on two legs at the
same time: We could take the atomistic stance, but that would render
macroeconomics a useless exercise. This is clearly what has been going on
for some time, with the assaults by libertarians and Beckerians. In the old
Swedish university of Lund (down south), they don't even teach
macroeconomics anymore, for the simple reason that in their libertarian
minds, there is no such thing as macroeconomics.
    On the other hand, we could take the holistic stance, which would put
macroeconomics at the forefront, and render microeconomics as a secondary
(without diminuitive connotations) study of the parts in their relation to
the whole. This is what I am advocating, but needless to say, I am having
some hard times in gaining adherence, even here amongst Keynesian friends.


Best,
Per

Per Gunnar Berglund
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127 61  SKARHOLMEN
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