Heterodox microeconomics and heterodox microfoundations

Introduction Frederic S. Lee is the most important heterodox microeconomist in our time to whom one must refer in doing a micro analysis that is alternative to neoclassical microeconomics and its variants. His primary contribution to heterodox microeconomic theory lies in the areas of pricing, price, production, costs, market competition, market governance, and modeling the economy as a whole (or heterodox microfoundations of macroeconomics). One might be puzzled why a microeconomist deals with the economy as a whole, since virtually all economists are taught that an analysis of a whole economy falls into the domain of macroeconomics. This is indeed a puzzle if one clings to neoclassical economics. In fact, some heterodox economists are not free of the neoclassical economics of which they are critical. Others also seem to believe that some aspects (in theory, policy, or method) of neoclassical economics are compatible with and, thereby, can be incorporated into heterodox economics. Such a dogmatic, self-contradictory, or apologetic attitude was never accepted by Fred Lee. In developing heterodox microeconomic theories, Lee long argued in a rigorous manner that the micro-macro dichotomy or the notion that micro-and macro-levels of economy are unrelated is fallacious. For example, pricing, production, and employment decisions by the business enterprise can only be understood and analyzed if one has a clear macro vision-that is, the “economy as a differentiated disaggregated [emergent] whole” (Lee 2011a, 16). From Lee’s viewpoint, macro-structural analysis without micro-behavioral analysis, or vice versa, does not rest on solid methodological and empirical grounds. If one’s vision is confined to changes in aggregate data, a resulting analysis is blind of underlying agency and its reciprocal relationship with structures that give rise to macroeconomic outcomes. Hence, a macro analysis without human agency embedded in a historical context is incapable of challenging the status quo in theory and in practice. In other words, root causes or hidden driving forces remain unseen in macro-only analysis. In this respect, Lee’s heterodox microeconomic framework offers important insights into the progress of heterodox economics. The starting point of heterodox analysis should be the vision of the system as a whole or the social provisioning process. But such a vision should be explained through the interactions between agency and structure. Agency represents actual decisions and actions taking place in a particular historical and social context. Therefore heterodox microeconomics is not simply about “individual” behaviors. Rather it “involves working with the sub-systems and interdependencies to develop analytical narratives qua theoretical explanations that contribute to understanding the social provisioning process” (Lee 2011a, 18). Such a concept of heterodox microeconomics is more comprehensive, realistic, relevant, and radical than most heterodox macroeconomic theories. Many heterodox economists, however, assume that either there is no heterodox microeconomics or heterodox microeconomics is all about individual behaviors. Consequently, they believe that if heterodox macroeconomics needs a microfoundation, it is the mainstream kind-optimizing behaviors given scarce resources; or, there is no need to develop heterodox microfoundations. In this chapter I argue that such a misunderstanding of heterodox microeconomics is inimical to the development of heterodox economics. Drawing upon Fred Lee’s contributions to heterodox microeconomics, I discuss what heterodox microeconomics is, how it is different from neoclassical microeconomics as well as heterodox macroeconomics, and why heterodox microeconomics is essential in analyzing the social provisioning process. The elaboration of Lee’s theoretical framework, and hopefully advancing his theoretical tradition, is the objective of this chapter.