The Nature of Macroeconomics

The Nature of Macroeconomics

Instability and Change in the Capitalist System

Athol Fitzgibbons

This book addresses the long absence of a satisfactory theory of macroeconomics. Keynesian theory is not consistent with rational self-interest, but neo-classical economics is unable to explain economic volatility and the trade cycle. Athol Fitzgibbons critiques the leading macroeconomic theories, which he believes are unduly mechanistic because they are incompatible with non-quantitative knowledge.

Chapter 7: Conclusion

Athol Fitzgibbons

Subjects: economics and finance, post-keynesian economics


Capitalism is a dynamic and adaptable system because it encourages the operation of intelligent self-interest in the context of uncertainty and partial knowledge. That same motive and context generate business cycles, which are therefore the reverse side of capitalist dynamism - fluid and responsive markets are also prone to instability. Governments do have the power to moderate these fluctuations, and they can do so in a way that promotes their values. Their stabilization policies interfere with the efficiency of the capitalist system, but this might not be important because without perfect knowledge there is no uniquely natural rate of interest and dynamic efficiency is only vaguely defined. Unfortunately the scope for government stabilization policies is limited, because they can be offset by profit taking to the extent that the markets can anticipate the future.Yet to the extent that there is ignorance about the future, government policies will incorporate the same subjective element that causes business cycles in the first place. Government inconsistencies and market inconsistencieshave the same cause, which is the absence of an optimal course of action, and so attempts to suppress market instability will tend to generate instability in a different form. It is difficult to theorize about macroeconomic phenomena, because they can only occur in the sort of fluid and complex environment that cannot be defined by fully determinate and mechanical relationships. Macroeconomic volatility can only arise because commercial judgements are not fully determined; if the aim of economic science is the enunciation of fully determinate relationships,...

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