Consumption & Class in Evolutionary Macroeconomics

Rengs, Bernhard and Scholz-Waeckerle, Manuel (2017): Consumption & Class in Evolutionary Macroeconomics.

Abstract

This article contributes to the field of evolutionary macroeconomics by highlighting the dynamic interlinkages between micro-meso-macro with a Veblenian meso foundation in an agent-based macroeconomic model. Consumption is dependent on endogenously changing social class and signaling, such as bandwagon, Veblen and snob effects. In particular we test the macroeconomic effects of this meso foundation in a generic agent-based model of a closed artificial economy. The model is stock-flow consistent and builds upon local decision heuristics of heterogeneous agents characterized by bounded rationality and satisficing behavior. These agents include a multitude of households (workers and capitalists), firms, banks as well as a capital goods firm, a government and a central bank. Simulation experiments indicate co-evolutionary dynamics between signaling-by-consuming and firm specialization that eventually effect employment, consumer prices as well as other macroeconomic aggregates substantially.

• Item Type: MPRA Paper
• Language: English
• Keywords: Evolutionary macroeconomics; agent-based modelling; micro-meso-macro; conspicuous consumption; social class; firm specialization
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms

References

Bourdieu P (2010) [1984] Distinction: A social critique of the judgement of taste. Routledge, London/New York

Bourdieu P (1998) Practical reason: On the theory of action. Polity Press, Cambridge (UK)

Bush PD (1987) The theory of institutional change. Journal of Economic Issues 21 (3): 1075-1116

Caiani A, Godin A, Caverzasi E, Gallegati M, Kinsella S, Stiglitz JE (2016) Agent based stock-flow consistent macroeconomics: Towards a benchmark model. Journal of Economic Dynamics & Control 69: 375-408

Chai A (2016) Tackling Keynes’ question: a look back on 15 years of Learning To Consume. Journal of Evolutionary Economics. DOI 10.1007/s00191-016-0455-7

Chai A, Moneta A (2010) Retrospectives: Engel curves. Journal of Economic Perspectives 24 (1): 225 – 240

Chen SH, Chang, CL, Wen MC (2014) Social networks and macroeconomic stability. Economics: The Open-Access, Open-Assessment E-Journal 8 (2014-16): 1-40

Ciarli T, Lorentz A, Savona M, Valente M (2010) The effect of consumption and production structure on growth and distribution. A micro to macro model. Metroeconomica 61 (1): 180-218

Cincotti S, Raberto M, Teglio A (2010) Credit money and macroeconomic instability in the agent-based model and simulator Eurace. Economics: The Open-Access, Open-Assessment E-Journal 4: 2010-2026

Cowan R, Cowan W, Swann P (1997) A model of demand with interactions among consumers. International Journal of Industrial Organization 15: 711-732.

De Bresson C (1987) The Evolutionary Paradigm and the Economics of Technological Change. Journal of Economics Issues 21 (2): 751-762

Delli Gatti D, Gaffeo E, Gallegati M (2010) Complex agent-based macroeconomics: a manifesto for a new paradigm. Journal of Economic Interaction and Coordination 5: 111-135

Delli Gatti D, Desiderio S, Gaffeo E, Cirillo P, Gallegati M (2011) Macroeconomics from the Bottom-up. Springer, Berlin

Dopfer K, Foster J, Potts J (2004) Micro-meso-macro, Journal of Evolutionary Economics 14: 263-279

Dopfer K, Potts J, Pyka A (2016) Upward and downward complementarity: the meso core of evolutionary growth theory. Journal of Evolutionary Economics 26(4): 753-763

Dosi G (2012) Economic coordination and dynamics: Some elements of an alternative “evolutionary” paradigm. LEM Working Article Series 2012/08

Dosi G, Freeman C, Nelson R, Silverberg G, Soete L (1988) Technical Change and Economic Theory. Frances Piner, London

Dosi G, Fagiolo G, Roventini A (2010) Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles. Journal of Economic Dynamics and Control 34 (9): 1748-1967

Dosi G, Fagiolo G, Napoletano M, Roventini A (2013) Income distribution, credit and fiscal policies in an agent-based Keynesian model. Journal of Economic Dynamics and Control 37(8): 1598-1625

Elsner W (2007) Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics. Forum for Social Economics 36(1): 1-16

Fabiani S, Druant M, Hernando I, Kwapil C, Landau B, Loupias C, Martins F, Mathä Th, Sabbatini R, Stahl H, Stokman A (2006) What firms’ surveys tell us about price-setting behavior in the euro area. International Journal of Central Banking 2(3): 1-47.

Farmer JD, Foley D (2009) The economy needs agent-based modelling. Nature 460: 685-686

Fessler P, Lindner P, Schürz M (2014) Eurosystem Household Finance and Consumption Survey 2014. First results for Austria (second wave). Austrian Central Bank

Fine B (2002) The world of consumption: The material and cultural revisited. 2nd edition. Routledge, Abingdon

Fisher W, Hof FX (2005) Status seeking in the small open economy. Journal of Macroeconomics 27 (2): 209-232

Foster J (1987) Evolutionary macroeconomics. Unwin Hyman, London

Foster J (2011) Evolutionary macroeconomics: a research agenda. Journal of Evolutionary Economics 21: 5-28

Godley W, Lavoie M (2012) Monetary Economics. An integrated Approach to Credit, Money, Income, Production and Wealth, 2nd edition. Palgrave MacMillan, London

Gruchy AG (1990) Three different approaches to institutional economics: An evaluation. Journal of Economic Issues 24 (2): 361-369

Hanappi G (2014) Bridges to Babylon: critical economic policy – from Keynesian macroeconomics to evolutionary macroeconomic simulation models. In: Mamica L, Tridico P (eds) Economic Policy and the Financial Crisis. Routledge, Abingdon

Hanappi H and Scholz-Wäckerle M (2017) Evolutionary political economy. Content and Methods. Forum for Social Economics.

http://dx.doi.org/10.1080/07360932.2017.1287748

Hanappi H, Katsikides S, Scholz-Wäckerle M (2017) (eds) Theory and method of evolutionary political economy. Routledge, Abingdon

Heffetz O (2011) A test of conspicuous consumption: visibility and income elasticities. The Review of Economics and Statistics XCIII (4): 1101-1117.

Hodgson GM (1998) The approach of institutional economics. Journal of Economic Issues 36 (1): 166-192

Kapeller J, Schütz B, Steinerberger S (2013) The Impossibility of Rational Consumer Choice - A Problem and its Solution. Journal of Evolutionary Economics 23 (1): 39-60

Kapeller J, Schütz B (2015) Conspicuous consumption, inequality and debt: The nature of consumption-driven profit-led regimes. Metroeconomica 66 (1): 51-70

Kirman A (1992) Whom or what does the representative individual represent? The Journal of Economic Perspectives 6 (2): 117-136

Kirman A (2011) Complex economics: Individual and collective rationality. Graz Schumpeter Lectures. Routledge, London and New York

LeBaron B, Tesfatsion L (2008) Modeling macroeconomies as open-ended dynamic systems of interacting agents. American Economic Review 98 (2): 246-250

Leibenstein, H. (1950). Bandwagon, snob, and Veblen effects in the theory of consumers’ demand. The Quarterly Journal of Economics 64 (2): 183-207.

Lengnick M (2013) Agent-based macroeconomics: A baseline model. Journal of Economic Behavior & Organization 86 (C): 102-120

Lepinay VA (2007) Economy of the germ: capital, accumulation and vibration. Economy and Society 36:4: 526-548

Lorentz A, Ciarli T, Savona M, Valente M (2016) The effect of demand-driven structural transformations on growth and technological change. Journal of Evolutionary Economics 26 (1): 219-246

Malerba F, Nelson R, Orsenigo L, Winter S (2007) Demand, innovation, and the dynamics of market structure: The role of experimental users and diverse preferences. Journal of Evolutionary Economics 17: 371-399.

Marx K (2001) [1867] Das Kapital. Kritik der politischen Ökonomie. Band 1: Der Produktionsprozeß des Kapitals. 20. Auflage, Marx-Engels-Werke Band 23, Dietz Verlag, Berlin

McIntyre R (1992) Consumption in Contemporary Capitalism: Beyond Marx and Veblen. Review of Social Economy 50(1): 40-60

Nelson R, Consoli D (2010) An evolutionary theory of household consumption behavior. Journal of Evolutionary Economics 20 (5): 665-687

Nelson R, Winter S (1982) An Evolutionary Theory of Economic Change. Belknap Press, Harvard

Rehm M, Naqvi A, Hofmann J (2016) Different but equal? Classes, wealth, and perceptions in Europe. Working Article-Reihe der AK Wien Nr. 160.

Rengs B, Wäckerle M (2014) A Computational Agent-Based Simulation of an Artificial Monetary Union for Dynamic Comparative Institutional Analysis. Proceedings of the 2014 IEEE Conference on Computational Intelligence for Financial Engineering & Economics (CIFEr): 427 – 434

Rengs B, Scholz-Wäckerle M (2017) Fiscal policy and redistribution in an evolutionary macroeconomic model of an artificial monetary union. In Hanappi H, Katsikides S, Scholz-Wäckerle M (eds) Theory and method of evolutionary political economy. Routledge, Abingdon

Riccetti L, Russo A, Gallegati M (2013) Unemployment Benefits and Financial Leverage in an Agent Based Macroeconomic Model. Economics: The Open-Access, Open-Assessment E-Journal 7 (2013-42): 1 – 44

Safarzynska K, van den Bergh JCJM (2010) Demand-supply coevolution with multiple increasing returns: Policy analysis for unlocking and system transitions. Technological Forecasting and Social Change 77(2): 297-317.

Saviotti P, Metcalfe JS (eds) (1991) Evolutionary Theories of Economic and Technological Change. Harvard Academic Publishers, Reading

Scholz-Wäckerle M (2017) Generating meso behavior. In Frantz R, Chen Shu-Heng, Dopfer K, Heukelom F, Mousavi S (eds.) Routledge International Handbook of Behavioral Economics. Routledge, London and New York.

Schumpeter JA (2012) [1934] The theory of economic development. Transaction Publishers, New Brunswick/New Jersey

Seppecher P (2012) Flexibility of Wages and Macroeconomic Instability in an Agent-Based Computational Model with Endogenous Money. Macroeconomic Dynamics 16 (s2): 284-297

Simon, H.A. (1962) The architecture of complexity. Proceedings of the American Philosophical Society Vol. 106 (6): 467-482

Simon H.A. (1996) [1969] The Sciences of the Artificial, 3rd edition. Cambridge, MA: MIT Press.

Stiglitz JE (2015) Reconstructing macroeconomic theory to manage economic policy. In: Laurent E, Cacheux JL, Le Cacheu J, Jasper D (eds) Fruitful Economics. Articles in honor of and by Jean-Paul Fitoussi. Palgrave MacMillan, 20-56

Stiglitz JE, Gallegati M (2011) Heterogeneous interacting agent models for understanding monetary economies. Eastern Economic Journal 37 (1): 6-12

Tarde G (1903) The laws of imitation. Henry Holt: New York

Tesfatsion L, Judd KL (2006) Handbook of computational economics: Agent-based computational economics, Vol. 2, North Holland, Amsterdam

Tool MR (1977) A social value theory in neoinstitutional economics. Journal of Economic Issues 11 (4): 823-846

Trigg AB (2001) Veblen, Bourdieu and conspicuous consumption. Journal of Economic Issues 35: 99-115

Valente M (2012) Evolutionary demand: a model for boundedly rational consumers. Journal of Evolutionary Economics 22 (5): 1029-1080

Van Treeck T, Sturn S (2012) Income inequality as a cause of the Great Recession? A survey of current debates. ILO Condition of Work and Employment Series No. 39

Veblen Th (2009) [1899] The theory of the leisure class. Oxford University Press, Oxford/New York

Verspagen B (2002) Evolutionary macroeconomics: a synthesis between neo-Schumpeterian and post-Keynesian lines of thought. The Electronic Journal of Evolutionary Modeling and Economic Dynamics, no 1007 www.e-jemed.org/1007/index.php

Wendner R (2010) Growth and keeping up with the Joneses. Macroeconomic Dynamics 14 (S2): 176-199

Wilensky U (1999) NetLogo. http://ccl.northwestern.edu/netlogo/. Center for Connected Learning and Computer-Based Modeling, Northwestern University. Evanston, IL

Witt U (1992) Evolutionary Economics. Edward Elgar, London

Witt U (2001) Learning to consume – a theory of wants and the growth of demand. Journal of Evolutionary Economics 11 (1): 23-36

Wright EO (2015) Understanding Class. Verso, London/New York