Relations Between Micro and Macro Levels

22 February 2009 at 4:20 pm 5 comments

| Nicolai Foss |

Levels issues, micro-foundations, methodological individualism and collectivism, etc. have long been O&M favorites (e.g., here, here, here, and here). While the O&M bloggers are card-carrying methodological individualists, we also (like all other economists and management scholars) acknowledge that macro matters, in the sense that it may be meaningful to think of variables placed at macro levels exerting an influence on decisions made at micro variables (as in the Coleman diagram; see here). The question is, what is the nature of this “relation”?

It is tempting to think of it as causal, so that “downward causation” is involved. However, many argue that downward causation is problematic: If macro phenomena exist in virtue of micro phenomena, how can macro phenomena meaningfully exert an influence on the very things they exist in virtue of? Relations between levels are rather constitutive than causal. Causality refers to intra-level relations, not inter-level ones.

In a recent paper, forthcoming in the analytical philosophy journal, Erkenntnis, Dutch philosophy professor Jack Vromen uses a sophisticated version of this argument (developed by Carl Craver and William Bechtel here) to attack my work on micro-foundations with Peter Abell and Teppo Felin (various summaries and references are here). Thus, we err, Vromen claims by thinking, for example, of routines and capabilities as macro variables that exert an influence on individuals; rather, routines and capabilities are mechanisms that causally link inputs into a firm to its behavior and performance and in which individual actions and interactions are involved as constitutive elements.

I will deal with this specific argument later (a response to Vromen is being finessed), but observe that the general argument seems dubious. It is of course correct that if we define  macro entities  in terms of  micro parts, we cannot satisfy the conditions for a causal link between the entities and their parts. But nobody really argues that macro entities and micro parts cause each other per se. Rather, properties of these, which are logically separable, can stand in a causal relationship (HT to Peter Abell for this point). Sure, industries are constituted by individual consumers and firms. Does this mean that one cannot speak of a price change “causing” certain changes in consumer or firm behaviors? Of course not; a specific property of  industry prices (i.e., that they assume a certain value) cause certain changes in the properties of individuals and firms, for example, the profit maximizing input mix of firms change.

Entry filed under: - Foss -, Methods/Methodology/Theory of Science.

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5 Comments Add your own

  • 1. brayden  |  23 February 2009 at 10:09 am

    Does this mean that one cannot speak of a price change “causing” certain changes in consumer or firm behaviors? Of course not; a specific property of industry prices (i.e., that they assume a certain value) cause certain changes in the properties of individuals and firms, for example, the profit maximizing input mix of firms change.

    What’s the difference between this and saying that shared beliefs about the best way to run an organization can influence the way that a manager runs a company? Isn’t this the kind of thing that a lot of macro-scholars say?

  • 2. Marc Benoit  |  23 February 2009 at 10:47 am

    Hear, hear a philosophy professor attacks F, A, & F’s work on “microfoundations.” Who would have thought that criticism may be justified (see comments):

    Is it just me or is it indeed incredibly painful to decipher (or even understand) the most basic arguments from cryptic sentences such as the one brayden is wondering about. Reminds me of a confession by Richard Feynman in which he basically said that every time he did not actually quite know what he was doing – and he wanted to impress – he resorted to an overly academic writing style.

  • 3. Nicolai Foss  |  23 February 2009 at 11:03 am

    Brayden, That is quite possibly what a lot of “macro scholars” (whatever that exactly means) say. I don’t know. If what you mean is that they claim some kind of downward causation you are right. But downward causation is philosophically problematic (there is a _huge_ philosophy literature on this). We argue that this is conclusion is based on confusing parts and the properties of parts. (I am happy to send you the response to Vromen as well as his original paper if want it — the response should be ready in a few days).

    Benoit, Pls don’t think that you infantile comments has anything to do with Vromen’s arguments.

  • 4. brayden  |  23 February 2009 at 11:43 am

    Nicolai – I just meant that your argument about price causing changes in the properties of individuals or firms doesn’t seem terribly different than the argument that changes in shared beliefs cause changes in managers’ behavior.

    But yes, I’d absolutely be interested in reading your response to Vromen! Thanks in advance.

  • 5. PeanutGallery  |  25 February 2009 at 1:51 am

    Marc: I see your point about the cryptic and overly academic language. That is why something more concrete and substantive, like French sheep meat production, is more practical, relevant and to my taste:

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
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