ABSTRACT
In this chapter I want to talk about the foundations of modern microeconomics. At the outset I wish to make clear that I am not using the word ‘foundations’ in any profound philosophical way but only indicating that I am interested in examining the fundamental assumptions we all make in the development of our microeconomic theories and models. It is always risky talking about foundations since all benefits are obtained only at high costs. The foundations I have in mind are those directly implied by the neoclassical maximization hypothesis, that is, the one key behavioral assumption of neoclassical economics. ‘Maximization’ in the context of explanation directly involves the use of calculus, at least in all textbooks.1 While textbooks will talk about ‘marginal utility’ or ‘marginal revenue’, actually they are discussing the first derivatives of specific utility or revenue functions in the usual calculus sense. Whether calculus is always implied depends on what we mean by explanation and how our notion of explanation is incorporated in the neoclassical explanation of prices. One of the ideas I uncovered while working on my 1982 book is that beliefs in induction and inductive learning are closely tied to the concepts of infinity and infinitesimals that are at the foundation of calculus. This alerted me to remember my undergraduate studies of calculus. Since so much of microeconomics is based on ordinary calculus concepts, I thought it appropriate to begin by examining the role of infinity and infinitesimals and then to examine their relationship to the recommended rejection of any dependence on induction.
