Evolutionary Microeconomics
Conventionally, microeconomics is the study of the decisions made by individual agents or agencies in the market. In it, producers and consumers exchange a certain quantity of a product at a price.
When referring to a single market, the study is usually called partial equilibrium analysis. Further, demand and supply functions may in their entirety be represented as a system of simultaneous equations. The study of the totality of all markets is usually called general equilibrium analysis. In this case, we have a model that contains all producers, all consumers, all products, all quantities supplied, all quantities demanded and all exchange prices. We are dealing with the total produce in an economy stated in terms of many individually allocated resources. Having included everything that constitutes a market economy, one might expect that this ought to make for macroeconomics, but still it is called microeconomics.The obvious misnomer can be explained only by considering its intellectual history. John Maynard Keynes suggested not looking at the relative allocation but, instead, at the aggregates of all production and of all consumption, and relating these to other aggregates such as investment, employment and money volume. The decision making of individual agents now does not refer to the relative choice in a commodity space but, rather, involves choices (translated into propensities) referring to the variables of the macro model. This alternative position led to the divide into micro and macro after World War II.
The “new macroeconomics” argues that better results may be obtained on the basis of microeconomics, for instance, by considering the individuals’ relative choice between more employment or more leisure - suggesting that properly understood macroeconomics can be interpreted as “applied” microeconomics. What remains as a distinguishing criterion for macroeconomics today is the money side, namely the variables of money volume, price level, circulation velocity and related variables.
The entire real side of the economy is left to the received canon of microeconomics, leaving in limbo the important questions of its endogenous structure and its endogenous change. PostKeynesian economics has identified major weak spots in the treatment of the money side, but it is not unfair to say that it has largely failed to furnish a theoretical exposition that would allow us to deal with structure and change.Evolutionary economics aims to construct “micro-foundations” that will enable us to explain endogenously structure and change in the economy (Blind and Pyka 2014). The term “microeconomics” will be adopted from the received canon for ease of communication in the following. Also the proposition of bimodality in the interpretation of microeconomics is retained. We have thus a rule (or rule composite), on the one side, and its carrier and a population of carriers that have adopted this rule, on the other side.
This stance may be identified as typically Marshallian. Marshall saw the single market or industry as a single unit comprising several integrated markets of a kind, as the major building block for constructing the macro of the economy. His building block was designed as a component part of the economy’s structure and as a process unit for explaining how it changed over time and, concomitantly, the structure it was part of. In the dichotomy between Keynesianism and neoclassicism, this central aspect of Marshall’s work got lost entirely.
This aspect has previously been captured with the notion of meso, distinguishing it from micro, as the single agent or socially organised micro-entity such as the firm, and macro, as the domain of the whole economy. The term microeconomics is redefined in this way, allowing us to address structure and change - in both the agent and the population. Evolutionary microeconomics is composed of a micro-unit (agent, firm or household) posited in a meso context (population, industry or institution; as structure/ process component).
Drawing on the concepts of rule trajectory and rule taxonomy, as introduced earlier, an exposition of the theoretical building block that captures the features of a single market can be attempted. At its simplest, we have supply and demand for a product in a market. The magnitudes of these depend on the demand and supply behaviour of the agents. In a neoclassical model both demand and supply behaviour depends on a single, uniform and invariant decision rule, the familiar maximisation of expected utility (with preferences, and so on, given). In a generic model, all operant behaviour is rulebased; specifically, demand behaviour depends on demand rules, and supply behaviour depends on supply rules. Rules evolve along a meso trajectory; they originate (phase 1), are selectively adopted (phase 2) and retained as institutions, facilitating the efficient performance of recurrent operations (phase 3). Market change represents a process of co-evolution between supply rules and demand rules; a market institution (phase 3) is a meta-stable co-evolutionary process composed of these rules.
The market is the locus where demand and supply meet - as rules and operations - but the way this happens depends on the distinct organisational rules of the market. Until the breakdown of the centrally planned Soviet system prevailing in eastern European countries, the question of market organisation was part of the broader issue of centralisation versus decentralisation for all economic activities. Today the issue is more narrowly construed, with the focus on rules for organising capitalist markets. The design pertains to the various kinds of organisation of markets (market rules) given a market economy, not to the design of the market economy itself (system rules). Following the former line of inquiry, various types of market design or market rules have been discussed (Mirowski 2007; Roth 2007; Storbacka and Nenonen 2011).
The object of exchange is a product. It may be a money (finance) product or a real sector product.
Demand and supply in real product markets relate, contrary to money markets, to producers and to consumers (of real products). Therefore, supply and demand operations depend on producer rules and consumer rules. The real product itself is not homogeneous, like money or corn as standard, but it does have particular characteristics. To allow for the heterogeneity of products, it is necessary to specify them in terms of product rules.The example par excellence for producer rules is Nelson-Winter organisational routines, but they run through the whole gamut of rules assembled in the rule taxonomy. Consumer rules relate to new ways of consuming, to learning to consume and to retaining them as habits and institutions for recurrent consumptive operations (Bianchi 1998; Witt 2001; Potts et al. 2008; Nelson and Consoli 2010; Lazaric and Oltra 2012).
At a price, where the quantity supplied equals that of demand, the market is cleared. The operations governing supply and demand depend on producer and consumer rules, however, and reallocation at the operant level can in an evolutionary model take place only within a domain determined by the matching of producer rules and consumer rules. Thus, for market clearing, besides the equilibrium condition at the operant level we have the condition of rule correspondence at the generic level. The domain of the rule correspondence is not defined by Jevon’s “quantil” (number of units times price) of the product exchanged but, instead, by particular rule-defined product characteristics. It is not the operant but, rather, the locus of generic intersection - the rule-matching domain - that determines the exchange value and quantity of a product at the “deep” level.
The duality (producer versus consumer) of the generic characteristics of a product has been discussed in terms of technical rules (producer) and service rules (consumer) as a condition for establishing the afore-mentioned rule correspondence (Saviotti and Metcalfe 1984; Saviotti and Pyka 2004; Windrum et al.
2009).An exposition of a generic market model in which producer (firm) rules and consumer (household) rules are in a state of rule correspondence, thus yielding the product rule, is provided in Table 6.
The dynamics of markets is the process of coevolution of the rules defined by the taxa stated.
Table 6 Firm and household rules map into product rule
| Carriers | Producers | Product | Consumers | |
| (Firms) | (Households) | |||
| Rules by carrier | Producer rules | → Product rule | d | Consumer rules |
| (Firm rules) | (Household rules) | |||
| Rule types | Nelson-Winter | Metcalfe-Saviotti-Pyka | Nelson-Consoli-Witt | |