Beyond Microfoundations: Post Walrasian Macroeconomics.

Is Post Walrasian macroeconomics an alternative paradigm to Keynesian and Classical economics, whatever the prefix, and to non-Walrasian economics, as well? David Colander, the editor of this volume, thinks so and has compiled a collection of twelve papers by various authors including himself to support his view and to encourage others to question and extend the Post Walrasian approach. Readers unfamiliar with Post Walrasian thinking need to begin with Colander's overview which preceeds the collection of papers. Post Walrasians reject the assumption of a unique equilibrium position and an unconstrained representative agent. Instead, they visualize an economy where multiple equilibria abound but can be stabilized and limited by institutions. The institution plays the key role in constraining the representative agent in Post Walrasian analysis. As Colander says, "Spelling out those constraints is one of the tasks Post Walrasians have set out for themselves" [p. 9]. Included also in the overview is a brief description of each paper in the volume and of an appendix consisting of an annotated bibliography.

The volume is divided into four sections. The first section consists of papers by Clower and Howitt, Leijonhufvud, and Colander which present the vision behind Post Walrasian macro. Readers may already be familiar with Leijonhufvud's paper since it appeared in the Southern Economic Journal in 1993. His point is that Walrasian economics is a "top down" approach. What economists really need to do is to conceptualize from the "bottom up" as if the economy were "a network of interacting processors" [p. 42]. Colander's paper, which extends Leijonhufvud's "bottom up" idea, is entitled "The Macrofoundations of Micro" [Chapter 4]. What exactly does this title mean? After reading Colander's paper, one may still be puzzled since the answer seems to be hiding between the pages. But if readers jump to the annotated bibliography by van Ees and Garretsen, they will find out. According to the bibliographers, the macrofoundation of Post Walrasian economics is "centered around the concept of coordination failures" [p. 223]. They provide a section with a brief discussion of coordination failure including a brief review of the sources.

Section two consists of papers by Mehrling, Rosser, and Colander and provides the foundation of Post Walrasian macroeconomics. Rosser's paper is of particular interest since it defines and reviews chaos theory. It explains how the work in chaotic dynamics generates multiple equilibria and how this in turn relates to Post Walrasian macro. There is also a brief discussion of how chaos can be overcome.

The third section deals with the modeling of the Post Walrasian economy and contains one paper each by Martel and by Reaume and two by Bryant. Martel is concerned with the aggregation problem. He argues aggregate behavior is not the sum of individual behavior. Thus, economists should not extend the representative agent to the macro economy. On the other hand, Reaume suggests that functional form equations are not good representations of aggregate behavior and may be unstable. Thus unstable macro functions "cannot be confidently estimated using known statistical techniques" [p. 149], especially if there are regime switches. Macroeconomists should not be surprised by Reaume's conclusion, since it was recognized long ago that two or more economic aggregates cannot be derived from a theory of individual behavior if the composition of the aggregate is changing. Bryant's two papers deal with various issues of coordination and the game-theoretic approach to macro. His first paper provides an example of how team production in an "institutional structure" can lead to effort levels less than the maximum and thereby coordination failure. This example is expanded to production in the entire economy. Bryant says, "Coordination matters, and the institutions that provide coordination become a central element in the analysis of the economy. This is the essence of Post Walrasian macroeconomics" [p. 159]. The reader will find it hard to imagine what economy-wide institutions could emerge to solve macroeconomic coordination failure. This situation is contrasted with the problem of coordination failure within the rapidly expanding literature in the new managerial economics.

The final section contains papers by van Ees and Garretsen and by Colander and van Ees dealing primarily with Phelps's recent book on structural slump and economic policy. For example, van Ees and Garretsen say, "Since a theory of policy is about institutional change, an equilibrium-based, perfect markets, perfect foresight approach to economic policy, like the one in Structural Slumps, is not a good starting point" [p. 199]. Moreover, the authors point out the well-known idea about Keynesian policy and how the free market cannot solve economic problems. Then they go on to say, "In a Post Walrasian framework, it's not even clear what a 'free market' is" [p. 199]. To the reader that statement is a rather sobering thought about Post Walrasian macro. What van Ees and Garretsen are suggesting about the "free market" is that the economy is "distorted" and Keynesian policy makes it even more distorted. The final paper in the last section, by Colander and van Ees, compares and contrasts Post Walrasian interpretations of policy with Phelps's specific policy prescriptions derived from his structuralist analysis. The authors point out that the Post Walrasian framework has more transmission mechanisms for policy than does Phelps's, but the conclusions are not as certain. In conclusion, as Colander says, "This Post Walrasian research project is in its infancy" [p. 16]. The question is, will Post Walrasian macro continue to grow to maturity, or will the baby be thrown out with the bath water?

Charles D. DeLorme, Jr. University of Georgia