Abstract

This paper claims that how economists actually treat the consumption function, both theoretically and empirically, seems to be at odds with traditional structural realism. While economics aims to find out the way the world actually is, economic theory – including theoretical staples such as the consumption Euler equation – do not always state literal truths. Yet, such methods persist. Our investigation will reveal that the Euler equation is deployed as part of a realist methodology to identify scale-dominant behaviors. These analyses permit the economist to conduct counterfactual reasoning and sometimes (via policy) to intervene on the world itself; the implication is when this is successful, the economist has uncovered real structure.