Cherchez la Firme. Redressing the Missing Meso Middle in Mainstream Economics

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Abstract

Aristotle warned against a ‘missing middle’ in logic (Gk Mesos – middle; intermediate). This paper submits that one of the reasons why there has been next no major breakthrough in macroeconomics since the financial crisis of 2007-2008, has been a missing middle in the micro-macro syntheses of mainstream economics – constrained by partial and general equilibrium premises. It proposes that transcending this requires recognition that large and multinational corporations (between small micro firms and macro outcomes – yet also influencing both) merit the concept of mesoeconomics. Drawing on earlier applications, the paper relates this concept to the reasons for ‘too big to fail’ and suggests implications for both research and policies to gain institutional accountability of global big business. Including how a meso dimension to input-output could gain transparency on risk-prone financial transactions by banks and transfer pricing by multinational corporations and even on global warming. It also offers an invitation to interested scholars to join a post-Keynesian and post-Marxian mesoeconomics research network within an evolutionary economics perspective.

Posted for comments on 13 Jun 2018, 10:19 am.

Comments (1)

  • Nuno Martins says:

    This is an interesting, important and dense paper which makes a remarkable combination of insights from economic policy, economic history, economic thought and psychology. The argument for the relevance of mesoeconomics is very persuasive, and well supported by historical and theoretical evidence. Given the enormous amount of information that is articulated to produce the argument, one actually ends up wondering whether there are actually two papers here, where one could focus on the parts relating to economic policy and economic history (to be considered for the World Economic Review) and another one focusing on the parts on economic thought and psychology (to be considered for Economic Thought). This would perhaps produce two papers that would be easier to follow for the reader, albeit losing the advantages of seeing both developments (empirical and theoretical) in a single paper. Another solution would be to remove parts that may not be as relevant to the paper (for example, the examples of uses of the term “meso” in other disciplines in page 2, which does not help establishing the case for meso-economics). Alternatively, one could also remove some parts which would require more analysis than the brief references made: for example, the references to David Ricardo’s putative knowledge of Portugal given the Portuguese origin of his family at the top of page 9, which is difficult to establish, much less with reference to the Portuguese origin which was somewhat remote at the time as his family had been for a long time in Holland before moving to England. Another example of a claim which would require further development is the reference to the influence of the later Wittgenstein on Keynes in the middle of page 10, which should include an analysis of the role of Piero Sraffa not only regarding his discussions with Wittgenstein, but also regarding his direct influence on Keynes (rather than indirectly through Wittgenstein). If the paper is divided in two, however, there would be plenty of space to develop these aspects, and other very interesting ones, such as the views of John Hicks on the IS-LM model. The paper refers to Hicks’ 1980-1 paper on the Journal of Post Keynesian Economics in which Hicks criticizes the IS-LM model, but the paragraph at the end of page 14 in this paper reveals first-person knowledge of Hicks’ views which goes beyond what is in that paper, and could be fruitfully articulated with other parts of this paper. For example, the fact that investment is influenced by prospective demand rather than the interest rate mentioned when discussing Hicks could be seen together with Michal Kalecki’s insight that the amount of capital owned by the firm which is reinvested is often an important positive determinant of investment, and the influence of the interest rate is difficult to disentangle from gross profitability since it often negatively correlated with gross profitability. So Kalecki ends up focusing on capital owned by the firm and gross profitability as drivers of investment rather than the interest rate (whereas existing capital has a negative effect on investment, which leads to a reversal of the business cycle whenever the latter negative effect outweighs the two other positive effects). This is important because Kalecki, together with various institutionalist economists since Thorstein Veblen, can be seen as an important precursor of the emphasis on meso-economics given many of his contributions that the paper rightly notes, and this analysis of the role of firms. In short, I think the paper would benefit either from removing some parts in order to focus on the key argument, or alternatively from being transformed into two papers. Either way, it contains very valuable insights, and it highlights a very important problem which has been relatively neglected in the literature, and certainly deserves to be brought to the public’s attention.

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