A key line of critique reflects concerns about excessive generality and misplaced concreteness. It highlights “details” like the widespread presence of economies of scale that challenge the textbooks' prevailing PC assumption of rising marginal cost curves.
The analysis offers dual economy models in place of PC models and asserts the need for theories of pricing and investment appropriate to the reality of strategic competition amongst massive, capital intensive firms.
Building on holist methodology, the commentary will also explore how large firms exercise power, replacing narrow neoclassical images of economic influence (monopoly firms' ability to reduce supply in order to increase price) with multidimensional models of corporate influence over consumer tastes and preferences, state policy, the media, and other institutions (such as universities and foundations). Reference will be also made to “Social Structure of Accumulation” models, which situate the nature of corporate organization, labor policies, inter-firm competition, etc. within larger political-economy models of capitalist development.
A third line of critique reflects dynamic objections to static models. A key point involves attention to the implications of path dependency. One argument emphasizes the ability of large firms to “create” as much as “discover” efficient development paths through the capture of learning curve cost reductions, scale economies, and other path dependent advantages. These mechanisms can tilt economic development towards technologies that permit powerful firms to capture economic rent on their firm specific capital.
Once again a major goal of the critique will be to demonstrate that the textbook's presentation reflects the organizing logic of a subtext geared toward demonstrating market optimality.
The claim that prices reflect marginal costs (and therefore “real costs”), for example, are a key part of the subtext and are maintained even in the face of data to the contrary.
Should attacks on the notion of marginal cost pricing be successful, I would expect the neoclassical to shift to another definition of “real cost” pricing, but not to give up the claim that market prices have a special legitimacy. It is in fact this belief that allows honest neoclassical to accept the textbooks' stories because they find them "“basically” or “fundamentally” true, if not “exactly” true. This is not an unreasonable position, but it is a paradigmatic claim, not a “positivist fact.”
Perfect Information
The positing of perfect information is another assumption dictated by the optimality subtext. A key line of critique again involves claims of excessive abstraction and misplaced concreteness. In general equilibrium (GE) theory, all markets are treated as idealized, equilibrium markets overseen by an auctioneer. The information problems associated with the labor market (for example, incomplete contracting), credit markets (imperfect knowledge of future behavior), and product markets (lemons, etc.) are generally ignored or de-clawed.
Holist and epistemological insights about the social construction of information
(as opposed to the “objective givens” or objective production of information) are similarly ignored. Fusing attacks on perfect information and homo economicus assumptions, Levin criticizes textbook economics for not paying greater attention to the role of emotion and habit in decision making. He offers an interesting feminist-post-
Keynesian analysis that links socially constructed conventions to the likelihood of herd behavior and the potential for macroeconomic disequilibrium.
Post-Keynesian and Marxist critiques of textbook economics often stress the failure of static models to adequately capture disequilibrium realities. In GE theory, for example, no trades are permitted outside of equilibrium, so acknowledgment of imperfect information is subverted by the assumption that “mistakes” are corrected before they can alter equilibrium states.
Some neoclassical economists have made serious efforts to respond to some concerns about incomplete information. The New Keynesians' inquiry into the implications of asymmetric information address aspects of some of the issues noted above. This research, however, has not altered very much the equilibrium and optimality presentation in SN's principles text. I would be curious to know if this “note but ignore” response is true for other principles texts.
The neoclassical tendency to declaw imperfect information problems is illustrated nicely by early attempts to respond to concerns about uncertainty by substituting probability distributions for perfect knowledge. The latter enabled neoclassical models to substitute expected values for actual values and protect key optimality subtexts. More recent strategies acknowledge “true uncertainty”, but argue markets respond better to these problems than government planners. Again, this is a plausible though debatable judgment. It is not, however, a positivist truth.
Full-Employment
The assumption of full-employment in micro principles texts falls out of the equilibrium conclusions accompanying the assumption of perfect information. I've listed it separately, however, because of its central importance to economic theory.
Some critiques based on imperfect information, such as Post-Keynesian critiques, raise employment concerns due to insufficient aggregate demand. New Keynesian analyses of imperfect information suggest a tendency for disequilibirum wages to cause excess supply in the labor market.
Critiques based on concerns about excessive abstraction and misplaced concreteness point to the need for economic analysis to move from abstract models to more concrete specifications, like those of the dual labor market. The analysis of unemployment in this case needs more embedding in larger social contexts.
As noted below, radical and Marxist theories of the profit rate raise different rationales for the likelihood of unemployment. All of these critiques tend to challenge the laissez-faire conclusions of GE theory and lay the groundwork for a more activist, Keynesian-oriented macro policy.
Conclusion
There is a significant need for a critical commentary on micro principles texts.
There is enough common ground across heterodox paradigms to construct a shared critique. The key task is to offer students a sustained argument that challenges neoclassical ways of reasoning. By drawing analogies between different critiques over many chapters and making special efforts to challenge neoclassical “stories,” a critical commentary can enable students talk back” to the texts
