The Micro-Macro Divide of Neoclassical Economics vs. the Macro-Microscopic Classical Political Economy Approach

Tsoulfidis, Lefteris and Chatzarakis, Nikolaos (2024): The Micro-Macro Divide of Neoclassical Economics vs. the Macro-Microscopic Classical Political Economy Approach.

Abstract

This paper examines the conditions leading neoclassical economics to its division into microeconomics and macroeconomics, comparing it with the integrated macroscopic-microscopic approach of Classical Political Economy (CPE). Neoclassical economics emerged in the last quarter of the 19th century introducing a subjective theory of value based on individual preferences and optimizing behavior. The division between micro and macroeconomics became visible during the 1930s crisis due to what came to be known as monopolistic competition and macroeconomic revolutions. The stagflation crisis (of late 1960s to early 1980s) prompted the so-called microfounding of macroeconomics and the unified treatment of macroeconomic issues. By contrast, the CPE maintains a unified perspective, analyzing capitalism broadly at a macroscopic level focusing on labor as the primary value creator. Unlike neoclassical theory, CPE prioritizes aggregated variables and social class incomes driven by survival and profit motives rather than subjective preferences. The paper concludes that issues of effective demand, growth, and cycles can be fruitfully addressed within the unified CPE framework, highlighting the theoretical consistency of employing the labor theory of value for evaluating aggregate variables like capital.

• Item Type: MPRA Paper
• Language: English
• Keywords: Microfoundations, Classical Political Economy, Labor Theory of Value, Utility, Marginal Productivity
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B21 - Microeconomics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B51 - Socialist ; Marxian ; Sraffian; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E11 - Marxian ; Sraffian ; Kaleckian

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