New Directions in Modern Economics series
1. NEW PROBLEMS AND OLD QUESTIONS The present slump (2008–9) seems to be more severe than any of the past recessionary experiences that have occurred since World War II. The interaction between financial and real aspects on a world scale has certainly contributed to this result. Although it is difficult to assimilate these events to those characterizing the ‘Great Depression’, they seem to re-propose two questions that were on the agenda during those times: a. Does a fall in aggregate demand have a direct impact on the labor market that causes involuntary unemployment? b. Are there endogenous forces that lead to self-correction of any demand-induced unemployment? A natural place to look for answers to these questions might be the socalled ‘new synthesis paradigm’, which, according to some authors, is unifying macroeconomics. Even though it must be conceded that convergence is far from being complete, it is however true that the presence of a common methodology is an achieved result. The sentiment of relief that always accompanies the unification of a discipline is, however, immediately challenged when one considers the answers to those two questions that did not occupy a special place in the research agenda in the years of the ‘Great Moderation’ when the new synthesis had been achieved. It follows that some methodological questions become inevitable. The leitmotiv of this book is the dynamic working of an economic system, rooted in a monetary economy of production, that is not automatically self-correcting. The philosophy underlying this idea is that...