How Did Micro Come to Reign over Macro Again? On Microeconomics, Macroeconomics and Microfoundations for Macro

The gradual rise of New Classical Macroeconomics (NCM) starting in the mid-1970s, instituted it as the hegemonic position in macro theory and significantly, in macro policy making, before the end of the millennium. The views of the various tendencies within NCM regarding macro policy were diverse—particularly dissimilar were the New Keynesians—but they all shared a common theoretical conceptualization. A focal tenet was the method of New Classical Macroeconomics, emphasizing its exceptionality in the history of economics: The method was not only very different from the ‘old’ macroeconomics during the post-WWII era, as intended by its originators, but it also led toward a paradigmatic change in macroeconomics since it underlined microeconomics doctrines in the analysis of the macroeconomy. Essentially, NCM turned macroeconomics into microeconomics again in more than one way. Some NCM tendencies were more radical in adopting a micro perspective in the analysis of the whole economy, some were less, particularly concerning macro policies. The birth of macroeconomics after the 1936 General Theory, adopting a non-micro perspective for the analysis of whole economies in what was a clear break from what had occurred up to that point, was largely reversed by the end of the twentieth century. The analytical and historical story of the split of economic theory between microeconomics and macroeconomics is a complicated one. First it was a response to the creation of the sub-field of macroeconomics after 1936, but in later years a major change occurred when macroeconomists tried to introduce microeconomic foundations to macroeconomics.