Between structuralism and individualism

As Michael Pettis notes in his book The Great Rebalancing, economic, social and political forces, which include policy changes, all larger than the individual in society, can overwhelm or largely determine the incentives of the individual. Thus policies that promote an excess of production over total expenditure in an economy, and therefore an excess of savings over investment and a current account surplus, will tend to depress incomes, wages and consumption, whether that particular economy originally had a strong consumer society or not. Such an economy, whether it exists at the regional or national level, will in this case have a relatively depressed level of consumption and appear to have a ‘culture’ of thriftiness rather than one of high consumption. In this way, culture can be shaped by larger economic forces and policy and what appears to be simply individual preferences can on the contrary be structural.

In the same way, policies that promote an excess of total expenditure over production, and a consequent excess of investment over savings and a current account deficit, will have the opposite effect to the example described above. The economy will appear to consist of individuals with a high propensity to consume or invest and be the opposite of thrifty. The culture will seem to be quite different, but it can still be largely determined by the greater economic forces and policies at work. Thus culture is not fixed and can evolve over time in a direction determined by structural forces.

This emphasis on economic forces larger than the individual determining individual preferences and behaviour can be described as structural as opposed to theories which start with methodological individualism and proceed to draw conclusions about economic forces based on the summation of individual behaviour, moving from micro to macro. Structuralism moves in the opposite direction, from macro to micro, holding this to be the more dominant force in the economy and society.

A more complete theory would notice that the determinants of human behaviour in society can move in both directions, from micro to macro and from macro to micro. The individual can provoke change in the economy and society, which can be seen for example in chaos theory where the butterfly flapping its wings can apparently affect weather outcomes across the world. Strong leaders of vision can shape the behaviour of large groups or even a whole nation in times of crisis. The continuous flow from macro to micro and back again can be seen in situations in which the crowd inspires the speaker who, if effective, can in turn inspire the crowd in a new direction. Thus macro changes micro which changes macro. To take an example from economics, capitalist institutions (such as laws, traditions, and banks and the availability of credit) can create an environment (macro) in which an individual (micro) has the capability to spot an opportunity in the market or wider economy (macro) to make money by setting up a company which provides a particular good or service. He goes ahead (micro), takes out a loan, hires labour and equipment and makes a success of it, growing his company over time. A flow of processes between micro and macro elements can be similarly analysed in this way.

This sort of process can be examined without limit in a kind of meditative thought process, which only comes to an end when the thinker decides to do something different. Thinking is a continuous process which only comes to an end when the thinker dies, while collectively, thinking and consciousness continue as long as humans exist.

Returning to economics, structuralist approaches are useful but are not the final word. Individual incentives remain important and are not only determined by social or structural forces, although they can often be powerfully affected by them. It is vital to keep one’s mind open to different theoretical approaches and to notice the potential interactions between them, which can yield rich insights.

 

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