Published online by Cambridge University Press: 02 December 2009
In the past those who had been brought up in the Walrasian General Equilibrium tradition considered the field of Macroeconomics as essentially corresponding to the problem of aggregation. What meaningful relationships, they asked, among aggregate variables could be established starting from a set of independent utility maximizing individuals. This has not always been the case. Many earlier authors were content to specify the relations among aggregate variables and to test them without having recourse to models of individual behavior. It was nevertheless common practice to invoke individual decisions as a way of justifying the assumptions about, for example, the signs of the derivatives of the functions involved. This explains the famous remark that “70% of Keynes' General Theory is microeconomics.” What is referred to as Walrasian macroeconomics (whether this is appropriate or not as an appellation can be judged by looking at Donald Walker's (2005) “Walrasian Economics”) may be thought of as taking individual utility or profit maximizing behavior and translating it to the aggregate level. Generally, to avoid the aggregation problem, the aggregate data are treated as if they were the result of one individual's decisions. This, as is well known, is not legitimate from a theoretical point of view. Indeed, in the DSGE (Dynamic Stochastic General Equilibrium) synthesis the problem is not solved, just treated as if it were solved.
We continue to treat economic aggregates as though they correspond to economic individuals.