Abstract
The notion of growth is one of the most studied notions within economic theory and, traditionally, it is accounted for based on a positivist thesis according to which assumptions are not relevant, if economic models have acceptable predictive power. Following this view, it does not matter whether assumptions are realistic or not. Arguments against this principle may involve a defence of the realistic assumptions over highly idealized or false ones. This article aims in a different direction. Instead of demanding more realism, we can accept the spirit of the mentioned thesis, but, instead, criticize the circularity that may arise by combining different assumptions that are necessary for the explanation of economic growth in mainstream economics. Such a circularity is a key aspect of the well-known problem of providing microfoundations for macroeconomic properties. It is here suggested that the notion of emergence could be appropriate to arrive at a better understanding of growth, clarifying the issues related to circularity, but without totally rejecting the usefulness of unrealistic assumptions.
Highlights
According to traditional positive economics, the realism of the assumptions that sustain economic models does not matter; what matters is the model’s predictive power
I will focus on the mainstream, general model of macroeconomic growth considering traditional, microeconomic price theory, granting that both can be rendered as plausible by positivist standards if evaluated within their respective contexts
This explanatory circularity seems to raise a particular issue for positive economics, which is, in a certain sense, orthogonal to concerns over the irrelevance of assumptions, I will argue, mainly because it only arises when trying to form a coherent picture of a complex, interrelated set of social phenomena
Summary
According to traditional positive economics, the realism of the assumptions that sustain economic models does not matter; what matters is the model’s predictive power. On the other hand, price theory implies that production determines the value of capital and labour This explanatory circularity seems to raise a particular issue for positive economics, which is, in a certain sense, orthogonal to concerns over the irrelevance of assumptions, I will argue, mainly because it only arises when trying to form a coherent picture of a complex, interrelated set of social phenomena. According to the contextual notion of emergent property that I propose, we can express, for instance, how neoclassical models of growth, constructed based on unrealistic assumptions, may be compatible with broader perspectives.
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