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Money, Finance and Capitalist Development

Edited by Philip Arestis and Malcolm Sawyer

In the past thirty years the financial sector has seen unparalleled growth and has exerted increased economic and political influence and significance. This growth has come hand-in-hand with several serious economic crises and greater monetary instability. Set against this background, this important book offers a wide ranging, critical analysis of the financial sector.
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Chapter 2: An evolutionary-Keynesian analysis of capitalist performance

John Cornwall and Wendy Cornwall


2. An evolutionary–Keynesian analysis of capitalist performance John Cornwall and Wendy Cornwall1 2.1. ALTERNATIVE FRAMEWORKS Over the course of this century, the records of the currently advanced capitalist economies reveal two outstanding characteristics of macroeconomic development. First, economic growth has been accompanied by radical transformation of economic structures; and second, as Table 2.1 shows, lengthy periods of rapid growth and near full employment have alternated with equally long episodes of stagnation and high unemployment.2 Our objective is to develop a framework that explains both good and poor macroeconomic performance as outcomes of a dynamic process that emphasises the changing structure of capitalist economies as they develop. Of central interest is the interaction between economic performance and economic structure that generates endogenous changes in each. Development is not mere expansion of output. History shows that growth and structural change are inseparable in real economies. As industrialization and modernization proceed, the structure of the economy changes; and structure includes not only tastes and technologies, but also the institutions that govern economic activity. While some change may be traced to exogenous causes, much of it is endogenous, the result of routine economic activities. Endogenous changes in structure link the past with the future, demonstrating that development is an evolutionary process, not simply a sequence of disjointed phases. We argue that the most significant structural change of the post-World War II era occurred in institutions.3 Consequently, the framework introduced here concentrates on institutions, on how they influence performance, and on the...

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