“Institutions and the Viability of Macroeconomics:

The building of a modern, market economy requires the establishment of undirected systems of coordination and order. Yet, for three hundred years, social theorists have grappled with the project of explaining the basis of socio-economic order. The more recent attempt of mainstream economics to base macroeconomics on ‘sound microeconomic foundations’ is a modern version of this project. All these efforts have been motivated by a specific form of reductionism, based on the use of the individual as the given and fundamental use of analysis. Both mathematically and philosophically, this project has now run into the sand. Mathematical attempts to derive aggregate macro relationships from microeconomic assumptions have reached insurmountable difficulties. More generally, philosophical objections have been developed against reductionism. Some of the latter employ the concept of emergence, which is explored here. In addition, suggestions are made here as to how institutional economics can develop a quite different articulation and understanding of micro-macro relationships. The implications for policy-makers in the economies in transition are briefly discussed.