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Microfoundations

Contrast the modern notion of 'microfoundations' with Marx's 'real foundation' for the analysis of economic activity.

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Microfoundation theory puts the structure of the economy on the individual. In other words, what really matters is what people want and how much they are willing to spend. These variables are seen as independent of anything else. They are set against any approach that puts people into groups, as Marx does.

Without much reflection, Marx would call this "bourgeois" economics. That is more than just an insult, it is a way to describe any approach to economics that does not think historically. Individuals are not abstract beings. Their freedom is circumscribed by their social world and what is available to them there. In his famous Manifesto of 1848, Marx writes:

Modern Industry has converted the little workshop of the patriarchal master into the great factory of the industrial capitalist. Masses of laborers, crowded into the factory, are organized like soldiers. As privates of the industrial army, they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they slaves of the bourgeois class, and of the bourgeois state; they are daily and hourly enslaved by the machine, by the overlooker, and, above all, in the individual bourgeois manufacturer himself. The more openly this despotism proclaims gain to be its end and aim, the more petty, the more hateful and the more embittering it is (ch 1).

The situation reflected here has nothing to do with individual "preferences." Preferences are functions of the system, not of people. In modern life, there are only two groups, workers and owners. They are differentiated by the level of control they have over production. In classic Marxism, workers have no control, owners have total control. Markets are their creation, and they do not respond to "demand." Demand is also a function of the system.

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Solution Summary

The modern notion of microfoundations are examined. An analysis of economic activity is determined.

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