Macroeconomics as Systems Theory by Richard E. Wagner

Author:Richard E. Wagner
Language: eng
Format: epub
ISBN: 9783030444655
Publisher: Springer International Publishing

Macro Growth Theory: Shadow Boxing with Reality?

Starting with Solow (1956), macro theorists have shifted a good deal of their attention away from stability in resource allocation to the rate of growth. Simple reflection on the arithmetic of compound interest will show the attention-arresting power of this alternative focal point. A cardinal presumption of most formulations of macro growth theory hold that it is simple for public ordering to increase the rate of growth. Indeed, it could be no other way within the standard theoretical formulation. The aggregate rate of growth is a function of three variables: the size of the labor force, the size of the capital stock, and a productivity variable that operates to increase output from any given stock of capital or labor—and with most of the work being done by the productivity variable. Furthermore, that productivity variable is identified as knowledge which in turn is related to education and spending on education, as illustrated by Paul Romer’s (1986) treatment of endogenous growth theory.

Returning once again to the canonical statement of the alternative micro–macro conceptualization described by Fig. 1.​3, the standard formulations of macro growth theory entail a form of shadow boxing with reality. The growth equation asserts that the rate of growth can be increased by increasing any of its three arguments. It sounds like a recipe, but it isn’t. It has the form of a recipe, generic ingredients, but it isn’t a recipe because actual ingredients are not specified nor are instructions offered about how to combine those ingredients. Those macro-level variables are derived from micro-level interactions, and in no way are the primitive variables that accommodate human action. Setting labor and capital aside and focusing on knowledge, the central questions become where within the abstract space of human activity is knowledge generated and within what kind of organizational arrangement is it generated. Neither of these questions are relevant to macro growth theory, but it is questions like these that are necessary truly to understand the generation of knowledge. Knowledge always pertains to some identifiable subject, and it occurs within some organizational and institutional arrangement. Figure 3.​1 asked us to conceptualize people as choosing locations for their enterprises. It could just as well have asked us to conceptualize people as choosing subjects to think about. Just as we can imagine a distribution of enterprises across abstract commodity space, so can we imagine a distribution of inquiry across abstract topic space. Some people might inquire into high energy physics, others into linguistics, and so on.

Similarly, people might finance their inquiries from their own resources, either through equity or through debt. They might also receive support from external sources. Those sources could be nonprofit organizations organized inside the precincts of civil society or they could be political organizations. Within orthodox macro theory, the only object of interest is the volume of spending. Anything else is irrelevant for a line of inquiry devoted to quantity. In contrast, for a qualitative line of inquiry what would matter would be the

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