Capitalist instability

Posted: 23 January 2010 in Uncategorized
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Back in graduate school (at the University of Massachusetts Amherst, many years ago), we studied the roots of capitalist instability: the various ways a monetary commodity-producing economy might (but not necessarily) generate imbalances and instabilities based on the normal workings of the system (i.e., endogenous factors, not, as in neoclassical theory—then as now—as a result only of exogenous “shocks”). We read Marx and Keynes as well as the work of Robert Clower, Hyman Minsky, and Axel Leijonhufvud.

Clearly, contemporary mainstream macroeconomists have never studied those traditions, or have chosen to ignore them. And now we are living through the consequences—in the discipline of economics and in the real world.

Now, Leijonhufvud has a new paper (pdf), “Macroeconomics and the Crisis: A Personal Appraisal,” in which he presents a history of the Neoclassical Synthesis, the New Classical attack, and the New Neoclassical Synthesis, as well as his view of how “relatively small shocks [can] cause a fragile system to crash.”

There is much that Leijonhufvud leaves out (especially the class dynamics of a capitalist monetary commodity-producing economy), nor do I share his goal (to enact policies that allow a return to “Moderation”), but I certainly agree with his conclusion:

theories that assume that the economy is a stable general equilibrium system, albeit beset with some frictions and imperfections, do not hold true in general and. . .we need a new paradigm of economic thought.

Comments
  1. […] could possibly have thought that capitalism is self stabilizing. The rest of us—who have read Marx and Keynes as well as the work of Robert Clower, Hyman Minsky, and Axel Leijonhufvud—actually knew something about the roots of capitalist instability: the various ways a monetary […]

  2. […] could possibly have thought that capitalism is self stabilizing. The rest of us—who have read Marx and Keynes as well as the work of Robert Clower, Hyman Minsky, and Axel Leijonhufvud—actually knew something about the roots of capitalist instability: the various ways a monetary […]

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