Capitalism, Macroeconomics and Reality
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Capitalism, Macroeconomics and Reality

Understanding Globalization, Financialization, Competition and Crisis

James Crotty

The essays comprising this collection analyze the deep flaws in the methodological foundation of mainstream economic theory, and explain how these flaws make mainstream economics more ideology than sound social science. James Crotty develops alternative theories built on realistic assumptions that can explain most of the disastrous economic and financial developments of the past four decades. His work contributes to the collective creation of a solid theoretical foundation on which to build an understanding of the ‘laws of motion’ of capitalism in the post WWII era.
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Chapter 8: Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment of Keynes,Tobin and Minsky

James Crotty

Extract

Theories of the capitalist macroeconomy can be divided into those characterized by endogenously generated economic instability and those whose assumptions and structure guarantee the existence and attainment of equilibrium states or paths. We can again partition theories of endogenously generated instability into those in which the roots of instability are located exclusively in the “real” sector, those that root instability in the financial sector, and those models in which instability has dual roots-in which instability may be generated in either sector or simultaneously in both. It is an interesting fact that most theories of economic instability root unstable behavior almost exclusively in either the financial or the real sector. Marxian crisis theories generally focus on real-sector impediments to balanced growth, as do Keynesian multiplier-accelerator models; in these theories financial markets are either totally neglected or are of distinctly secondary importance. On the other hand, in several important Keynes-inspired theories there are no real-sector impediments to equilibrium; instability is exclusively grounded in ever-changing financial markets.

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