Micro/macro
from Dave Taylor
. . . most heterodox critics of the mainstream are thinking “macro” – of the economy as a whole – whereas most mainstream economists are still thinking “micro”, assuming what is true of all is true of any, and confusedly suggesting the many different things true of any and at different times are always true of all.
Consider the analogy of ships in an exogenously choppy sea. The equilibrists are right, the waves will even out; and the rationalists are right: the navigators will adjust the incidence of the ship so that the waves don’t swamp it; but that says nothing about what the ship is doing: where it is going and what gives them reasonable assurance (bar accidents) of getting there.
In the case of a ship, that is the compass and Cartesian coordinates enabling the mapping of our world in the past, and navigators now using them being able to aim sufficiently precisely for whatever is at a specific latitude and longitude. In the case of an economy, it is how the “crews” cooperate to satisfy their differing and developing needs, capabilies and functions.What I’m suggesting is that the economy is [like] a sea full of ships carrying different crews and cargoes to different places; that “micro” economics should be addressing the map and the obstacles to be generally avoided when aiming in specific directions, and “macro” economics should be theorising the subject in terms of the crew’s needs and methods of navigation, i.e. the dynamic logic and structure of the PID servo: operative at once in our brains, aims of communication, organisation and [Robert’s] communal forms of government.
This is not about social science in terms of lies, damned lies and statistics. It is about how the same logic manifests in different contexts, as algorithmic adding does whether the units are one’s or millions.
https://rwer.wordpress.com/2019/03/17/uncertain/#comments
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Edward Fullbrook and Jamie Morgan
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Edward Fullbrook and Jamie Morgan
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Shimshon Bichler / Jonathan Nitzan
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Real-World Economics Review Blog 
Also known as the fallacy of composition.
Consider the example of ships in a becalmed state. Bernoulli’s principle is involved. The rather speculative point of this example is to wonder whether fluid dynamics could have any application to economics.
As one writer puts it; “If there is the slightest current or waves or wind, and the direction is from one ship toward the other, then the downwind (or down-current) ship is in the “shadow” of the other. It gets less wind (or current), so it moves slower.,The up-wind ship will move faster and catch the down-wind ship. If the wind is 1/10 of a mile per hour, and the shadow effect is 10%, then the ships will be together in 100 hours = about 4 days.”
I can’t vow for the calculations in the above example.
“In fluid dynamics, Bernoulli’s principle states that an increase in the speed of a fluid occurs simultaneously with a decrease in pressure or a decrease in the fluid’s potential energy.” – Wikipedia.
If money has velocity, does it also have “pressure”? If so, what is this pressure and how could it be related to the velocity of money? However, before even asking those questions we would have to ask other questions first. Money is not a real quantity. Therefore, does it make sense to ask if money could obey fluid dynamic principles of any kind? On the other hand, money is not neutral. Think of what nearly happened when the markets almost gummed up in the Great Recession in 2008-2009. How do formal money and financial capital relate to the real economy? There are a lot of theories out there. I am attracted to aspects of MMT (Lerner, Wray, Mitchell) and CasP or Capital as Power (Bichler & Nitzan). Can these two theories be formed into a synthesis, I wonder?
First, thank you editor for suggesting these ideas are worth pursuing. Second, thank you Ikonoclast for asking legitimate questions which may help draw out the fundamentals behind the example.
To take my mind off my ill-health, I’ve been studying C I Lewis’s outline of a theory of knowledge:
“Mind and the World Order”. This was 1929, well before Shannon and Wiener but not mentioning the contemporary theories of Keynes on probability or Whitehead on process. It distinguishes experience and concepts to make the point, in effect, that one cannot measure anything unless one already has a ruler (hence Kant’s a priori, pure preceding applied science and Kuhn’s revolutions being in the pure). It is beautifully written and wonderfully lucid, yet left me amazed that one can write a book about what I was shown in a couple of extremely simple diagrams. Lewis hasn’t shown me a concept, but a verbal representation of what they are. I was taught to represent a concept visually, e.g. by a circle, and the objects it denotes by dots within it. Electrical theory adds an alternative representation. The concept is still represented by a circle (i.e. continuous circuit) but now the objects (e.g. electrons) are inside it and form a fluid subject to the laws of fluid dynamics, where being stationary is the exceptional case.
In response, then, “to wonder whether fluid dynamics could have any application to economics”, I ask, is money stationary, or does it circulate [round customary channels]?
Let us move onto the interesting questions. “If money has velocity, does it also have “pressure”? … does it make sense to ask if money could obey fluid dynamic principles of any kind?” I entirely agree, money is not a real quantity, but [this gets complicated] a representation of a quantity of something real. There again, quantities are not the sort of thing which circulate, but representations of them may, hence money may, however it is represented [not just as bank notes or IOU’s or coins or information-carrying digital micro-pulses of energy between computers storing bank accounts]. As I see it, whether money could obey fluid dynamic principles of any kind depends on whether we enter into the circuit, and whether we see it as information or the micro-pulses of energy carrying it.
A circle (hence circuit) is minimally represented by three points. An electric circuit is thus minimally a battery (having an “electromotive force”) having to overcome the inertia not just of the load but the “internal resistance” of the circuit itself. A monetary circuit can likewise be conceived as a bank supplying a distributor (who re-banks his takings) at the cost of having to finance a resource-using producer. What actually happens, though, is that the bank requires only micro-power to create and supply money. The produce-motivating force is supplied by the producer believing he has it and the distributor keeping the illusion going by thinking recording his deposits is enabling the bank to generate it.
Break the illusion and (given static logic) it seems as if the driving force of the economy will disappear. The reality is that the process of resource use is part of a larger ecological cycle, in which of regeneration of the resources needed for life does not keep pace with resource use then hunger will become the produce-motivating force. In fact evolution seems to have anticipated this and given us considerable pleasure in producing things worth making and doing other work worth doing. We should not, therefore, fear breaking the illusion. All that is needed is to credit producers and distributors for their needs and reward them for significant achievements instead of indebting them to banks, whose real function is nothing but accounting for the economic process.
All of which needs relating to the navigational analogy. Bernoulli’s principle evidently concerns the effect of motions of the seas on the ships. The point of the navigational analogy is that the speed is irrelevant: what is at issue is the direction of motion. With requisite PID information about position and direction of motion derived from Newton’s laws, it is not the sea which steers us but we who steer the ships.
Only by solving appropriate differential equations over time is it possible to provide valid theoretical quantitative analyses. All else is an exercise in futility. This is why there has not been a resolution for over 250 years of so called analysis. There is no difference of understanding between micro and macro analysis. Emergent properties arise from the solution of differential equations. Only when this is misunderstood is macro and micro seen as different.
I would not want to upset the participants in such an active discussion, but the question of macro and microeconomics is simple just one or two. Uncertainty in economics already has a solution, without complicated mathematics, and the sociality of the economy consists only in dividing society into three types of owners. Profit – which is a defining macroeconomic indicator, the nature of which is not yet known to you, is distributed among the three types of owners so that an infinite number of ships is not required. The distribution of profits between representatives of the same type of owners is a matter of microeconomics.
The ship sank decades ago. And with it sank billions of living creatures. One is at a loss as to whether Economics will ever be anything worth teaching or thinking about by the next round of
dealing and wheeling in arms and executions.