The irresistible charm of the micro-foundations dogma or the overwhelming force of the discipline's hard core?

Abstract

The appeal of the microfoundations project in economics is strongly supported by the considerable force of the discipline's hard core (in Lakatos' sense). This is especially the case, if the microfoundations metaphor is seen as a way of giving precedence to microeconomics in unifying economic theory rather than as requiring that all macroeconomic propositions are reduced to or derived from microeconomic ones. Given the micro-theoretical nature of the hard core, the microfoundations project and professional respect for the hard core have become closely intertwined and the orientating and disciplining role of the latter is of crucial importance in driving the former. Thus, questioning the microfoundations project is tantamount to confronting the hard core. Maximization of utility and maximization of profit, which are the two most fundamental tenets of the hard core, both suffer from serious weaknesses. Maximization of utility is not only contradicted by a lot of experimental and other empirical evidence but it is also neither necessary nor sufficient for establishing the law of demand. Profit maximization is falsified both on theoretical and empirical grounds, in the case of large corporations under managerial control, and is inconsistent or implausible in the case of small owner-run firms. Consequently, privileging micro over macro theory does not ensure sound foundations and the microfoundations project makes little sense. It follows that the search for consistency between microeconomics and macroeconomics should best be pursued in terms of the bridge metaphor.