Aggregating is not adding up

I’m browsing through Alfred Marshall’s [amazon_link id=”1932512136″ target=”_blank” ]Elements of the Economics of Industry[/amazon_link]. He wrote that earlier economists:

“Paid almost exclusive attention to the motives of individual action, But it must not be forgotten that economists, like all other students of social science, are concerned with individuals chiefly as members of the social organism. As a cathedral is something more than the stones of which it is built, as a person is more than a series of thoughts and feelings, so the life of society is something more than the sum of the lives of its individual members. It is true that the action of the whole is made up of that of its constituent parts; and that in most economic problems the best starting point is to be found in the motives that affect the individual….. but it is also true that economics has a great and increasing concern in motives connected with the collective ownership of property and the collective pursuit of important aims.”

And still increasing, given the public good characteristics of digital goods. The problem of aggregation seems to me an important one, rarely discussed, and exactly where the rational expectations revolution and real business cycle theory went wrong. It isn’t only a question of heterogeneity. There’s the fundamental question raised here by Marshall, that you don’t simply add up individual preferences or outcomes to get aggregate versions.

[amazon_image id=”B00882NQLM” link=”true” target=”_blank” size=”medium” ]The Economics of Industry: By Alfred Marshall and Mary Paley Marshall (Classic Reprint)[/amazon_image]

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