Should we talk about molecules?
June 16, 2007
In previous posts (here and here) I put forward the concept of economic molecules: the idea that the basic decision-making unit in markets is not the single human actor and, but instead a cluster of people, machines and procedures. However, I was asked, is a molecule the right term here?
Saying that we should be thinking about economic molecules implies that mainstream economics assigns agency to individuals (the ‘atoms’). But is this really the case? It was commented to me that mainstream micro-economics’ basic building blocks are households and firms. Well (the argument may continue), these concepts (households and firms) are clusters, made up of individuals and procedures and so are ‘economic molecules’. What is the difference, then? The difference lies in what one does with the concepts. Economics uses the concepts of households and firms to apply a simple taxonomy to economies. That is, once a decision-making unit was defined as a household or a firm, the discussion about the nature of that unit is over. Different households may have different utility curves and different firms may have different production schedules, but they all belong to one of those mutually exclusive categories. In contrast, the notion of the economic molecule stresses that fact there is a large variety in the makeup of the clusters and thus there may be many types of animals in the economic jungle. For example, small hedge funds do not think and act like proprietary trading rooms (in fact, even within those trading room there are different ‘species’).
This still leaves open the issue of the physical metaphor. As Daniel mentions in a post, and as was commented to me elsewhere, referring to social actions in terms of physical interactions alludes to the early days of sociology, to the days of ‘social physics’. Do we really want to go back there? Also, atoms have long stopped being the most fundamental unit of matter. So, what is the point in referring, even implicitly, to atoms? These last points are important since relative intellectual positioning is important in the academic world. But, this still leaves us with the question that Daniel asks: we have an interesting, and a potentially useful concept, but how do we capture it?