Heterodox Analysis of Financial Crisis and Reform

Heterodox Analysis of Financial Crisis and Reform

History, Politics and Economics

Edited by Joëlle Leclaire, Tae-Hee Jo and Jane Knodell

Though the worst of the financial crisis of 2008 has, with hope, ebbed, it has forever changed the economy in the United States and throughout the rest of the world. Using the financial and economic crisis as a catalyst, this volume examines how to better regulate the financial system and what to expect in the future if no steps are made toward reform. This book lays the foundation for those steps by providing concrete ideas that will push policy in the direction of jobs growth and widespread prosperity.

Chapter 9: A Heterodox Microfoundation of Business Cycles

Tae-Hee Jo

Subjects: economics and finance, financial economics and regulation, institutional economics, post-keynesian economics


Tae-Hee Jo* INTRODUCTION It is common to most heterodox approaches to business cycles that capitalist market forces destabilize themselves. This view leads to a broader range of claims such as, the capitalist economic system is inherently unstable due mainly to fundamental uncertainty and the peculiar role of money (Keynes, 1936; Minsky, 1986b), a society dominated by business institutions is prone to disturbances in a chronic manner (Veblen, 1904, 1921), by its normal functioning the capitalist system is moving toward a secular stagnation (Baran and Sweezy, 1966; Steindl, 1972) and the class-based capitalist system is its own gravedigger (Marx, 1990; Marx and Engels, 1848). When spelled out in full, they not only capture the cyclical changes in the capitalist economy, but also shed light on the tendential movement of capitalism. Leaving other theoretical and practical implications aside, I delve exclusively into the relation between the business enterprise and business cycles in this chapter. This is because business activities, whether routine or innovative, lie at the root of business cycles and the reproduction of the capitalist economy. In so doing, what is often untold and unnoticed by heterodox economists – that is, a heterodox microfoundation of business cycles – shall be delineated. To facilitate the discussion in hand, in the following section two widely received heterodox theories of business cycles are critically examined in terms of the concept of instability. The next section develops a heterodox microfoundation of business cycles with the emphasis on business activities and its decision-making mechanisms. The final section concludes...

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