The Macrodynamics of Capitalism : Elements for a Synthesis of Marx, Keynes and Schumpeter

This book provides an introduction to basic as well as advanced macrodynamics, viewed as a disequilibrium theory of fluctuating growth. It builds on an earlier attempt to reformulate the foundations of macroeconomics from the perspective of real markets disequilibrium and the conflict over income distribution between capital and labor. It does so, not because it seeks to support the view that this class conflict is inevitable, but rather from the perspective that an understanding of this conflict may help to formulate social principles and policies that can help to overcome class conflict at least in its cruder forms. It is further hoped that such an understanding can even lead to rational procedures and rules that may turn this conflict into a consensus-driven interaction between capital and the employable workforce. Peter Flaschel's impressive book should help economists find their way back from the fanciful treatment of the economy as an omniscient, infallible person to the central task of macroeconomics: to illuminate the forces that determine the growth and fluctuation of aggregate output, employment, and the general price level. Richard Day, University of Southern California, Los Angeles, USA This elegant book is a tour de force on the mathematical and conceptual underpinnings of a nonlinear, disequilibrium, macrodynamic theory of fluctuating growth with its pièce de résistance being the classic Goodwin growth cycle acting as a focal point for a consistent modelling of aggregate distributive variables. The author's mathematical mastery of nonlinear dynamics is, by now, legendary; this book testifies to his deep knowledge of the doctrine-historical bases of the theories he is developing. The enlightened policies that a conjunction of masterly analysis and a sympathetic grasp of the unruly facts of aggregate variables in disequilibrium motion imply are enunciated with exceptional clarity and admirable conviction. K. Vela Velupillai, University of Trento, Trento, Italy Contents......Page 8 1.1 Overview......Page 14 1.2 Methodological Considerations......Page 23 1.2.1 Microfoundations......Page 24 1.2.2 Market Clearing......Page 25 1.2.3 Rational Expectations......Page 26 1.2.4 A Short Summary......Page 28 1.3 A Baseline Model of a Capitalist Economy......Page 29 Part I: Temporary Equilibrium, Distribution-Driven Demand Cycles, and Unbalanced Growth......Page 34 2.1 Introduction......Page 35 2.2 Classical Macroeconomics......Page 39 2.3 A "Keynes Revolution" in the Classical Model......Page 46 2.4 New Classical Macroeconomics......Page 51 2.5 IS-LM-Analysis as a Generalization of the New Classical Model......Page 54 2.6 Keynes' Notes on the Trade Cycle......Page 57 2.7 Conclusions......Page 61 Appendix: Wicksell's Cumulative Process. An Intermediate Case Between the "Classics" and "Keynes"......Page 63 3.1 Introduction......Page 66 3.2 Basic Assumptions and Tools......Page 69 3.3 Unstable Warranted Growth (Harrod)......Page 75 3.4 Stable Depressions (Domar)......Page 80 3.5 Stable Full Employment Growth (Solow)......Page 83 3.6 Harrodian Instability in the Neoclassical Growth Model (Nikaido)......Page 87 3.7 The Keynesian Trade Cycle Model (Hicks)......Page 91 3.8 Three Types of Economic Regulation (Phillips)......Page 97 3.9 Conclusions......Page 104 Appendix: Nonlinear Approaches to Multiplier–Accelerator Analysis......Page 105 4.1 Marx's Point of Departure: The Classical Theory of Capital Accumulation......Page 117 4.2 Marx's Critique of the Classical Theory of Accumulation......Page 120 4.3 Goodwin's Distributive Growth Cycle Model......Page 124 4.4 A Simple Completion of the Goodwin Growth Cycle Model......Page 134 4.5 Government Stabilization Policies......Page 140 4.6 Independent Investment Behavior and Stabilization Problems......Page 144 4.7 The Nonequivalence of Classical and Keynesian Stabilization Policies......Page 150 4.8 Conclusions......Page 153 Appendix: Stability Analysis......Page 155 5.1 Introduction......Page 158 5.2 A "Monetarist Baseline Model"......Page 161 5.3 Conflict About Income Distribution and the "Natural" Unemployment Rate......Page 170 5.4 A Classical Modification of the "Baseline Model"......Page 175 Appendix: A Neo-Keynesian Analysis of Economic Depressions......Page 182 Part II: Conventional AD-AS Analysis: A Reconsideration......Page 193 6.1 Introduction......Page 194 6.2 Walrasian Price Adjustment in Keynesian Macrodynamics?......Page 196 6.3 Effective Demand as a Device for Simplifying Properly Specified Keynesian Dynamics......Page 200 6.4 On the Short-Run Instability of Full Employment Positions......Page 204 6.5 On the Instability of Long-Run Full Employment Equilibrium......Page 213 6.6 Conclusions......Page 228 Appendix: Wage Dynamics in a Depressed Economy......Page 230 7.1 Introduction......Page 236 7.2 Keynesian Monetary Growth Under Myopic Perfect Foresight......Page 238 7.3 AD-AS and Macroeconomic Performance Under Myopic Perfect Foresight......Page 243 7.4 On the Relevance of the AD-AS Rational Expectations Model......Page 248 7.5 A "Classical" Villain in the Keynesian Spectacle?......Page 251 Appendix: On the Stability of Models of Money and Growth......Page 261 Part III: Matured Keynesian AD-AS Analysis and Beyond......Page 271 8.1 Introduction......Page 272 8.2 Keynesian AD-AS: New or Matured?......Page 273 8.3 The Deterministic "Skeleton" of New Keynesian AD-AS Modeling......Page 275 8.4 Keynesian AD-AS Dynamics with Sluggish Price-Quantity Adjustment Processes......Page 282 8.5 The 3D Core Dynamics: Some Stability Results......Page 290 8.6 Estimation and Simulation of the Model......Page 294 8.7 Numerical Investigation of the Model......Page 299 8.8 Conclusions and Outlook: E pur si muove......Page 304 Appendix: Stability Proofs and the Occurrence of Hopf Bifurcations......Page 306 9.1 Introduction......Page 310 9.2 Contemporaneous Keynesian AD-AS Modeling......Page 311 9.3 A Baseline Keynesian D(isequilibrium)AD-D(isequilibrium) AS Model......Page 312 9.4 Econometric Analysis and Evaluation of the Model......Page 319 9.5 Conclusions and Outlook......Page 328 Appendix A: 4D Feedback-Guided Stability Analysis......Page 329 Appendix B: Wage Dynamics: Theoretical Foundation......Page 332 Appendix C: Price Dynamics: Theoretical Foundation......Page 333 Appendix D: Business and Long Phase Cycles in Inflation and Income Distribution......Page 334 10.1 From Marx's Law of Capitalist Accumulation to Schumpeter's Competitive Socialism and Beyond......Page 339 10.2 Flexicurity: A Spectre is Haunting Europe......Page 345 10.3 Dynamics: Stable Balanced Reproduction......Page 350 10.4 Educational Systems: Basic Structures and Implications......Page 353 10.5 Education, Equal Opportunities, and Life-Long Learning......Page 356 10.6 Pension Funds and Credit......Page 361 10.7 Flexicurity and the Keynesian Trade Cycle......Page 367 10.8 Schumpeterian Creative Destruction in Flexicurity Capitalism......Page 372 10.9 Conclusions and Outlook......Page 377 The M-K-S System. The Functioning and Evolution of Capitalism (by Richard M. Goodwin)......Page 380 Mathematical Appendix: Some Useful Theorems......Page 387 References......Page 394 This book provides an introduction to basic as well as advanced macrodynamics, viewed as a disequilibrium theory of fluctuating growth. It builds on an earlier attempt to reformulate the foundations of macroeconomics from the perspective of real markets disequilibrium and the conflict over income distribution between capital and labor. It does so, not because it seeks to support the view that this class conflict is inevitable, but rather from the perspective that an understanding of this conflict may help to formulate social principles and policies that can help to overcome class conflict at least in its cruder forms. It is further hoped that such an understanding can even lead to rational procedures and rules that may turn this conflict into a consensus-driven interaction between capital and the employable workforce. Peter Flaschel's impressive book should help economists find their way back from the fanciful treatment of the economy as an omniscient, infallible person to the central task of macroeconomics: to illuminate the forces that determine the growth and fluctuation of aggregate output, employment, and the general price level. Richard Day, University of Southern California, Los Angeles, USA This elegant book is a tour de force on the mathematical and conceptual underpinnings of a nonlinear, disequilibrium, macrodynamic theory of fluctuating growth with its pièce de résistance being the classic Goodwin growth cycle acting as a focal point for a consistent modelling of aggregate distributive variables. The author's mathematical mastery of nonlinear dynamics is, by now, legendary; this book testifies to his deep knowledge of the doctrine-historical bases of the theories he is developing. The enlightened policies that a conjunction of masterly analysis and a sympathetic grasp of the unruly facts of aggregate variables in disequilibrium motion imply are enunciated with exceptional clarity and admirable conviction. K. Vela Velupillai, University of Trento, Trento, Italy This book provides an introduction to advanced macrodynamics, viewed as a desquilibrium theory of fluctuating growth. It builds on an earlier attempt to reformulate the foundations of macroeconomics from the perspective of real markets disequilibrium and the confict over income distribution between capital and labor. It does so, not because it wants to support the view that this class conflict is inevitable, but with the perspective that an understanding of this conflict may help to formulate socio-economic principles and policies that can help to overcome class conflict at least in its cruder forms or that can even lead to rationally understandable procedures and rules that turn this conflict into a consensus-driven interaction between capitalists or their representatives and the employable workforce. The book starts from established theories of temporary equilibrium positions, the forces of real growth, and the conflict over income distribution, represented by basic modeling approaches, which it considers in detail in its Part I in order to prepare the ground for their integration in Part II of the book. In this way we inspect what types of models of disequilibrium, income distribution, and real growth we have at our disposal, as models that have proved to be of real interest and sound from a rigorous modeling perspective. This book provides an introduction to advanced macrodynamics, viewed as a di- quilibriumtheoryof?uctuatinggrowth. Itbuildsonanearlierattempttoreformulate 1 the foundations of macroeconomics from the perspective of real markets diseq- librium and the con?ict over income distribution between capital and labor. It does so, not because it wants to support the view that this class con?ict is inevitable, but with the perspective that an understanding of this con?ict may help to formulate socio-economic principles and policies that can help to overcome class con?ict at least in its cruder forms or that can even lead to rationally understandable proce- 2 dures and rules that turn this con?ict into a consensus-driven interaction between 3 capitalists or their representatives and the employable workforce. The book starts from established theories of temporary equilibrium positions, the forces of real growth, and the con?ict over income distribution, represented by basic modeling approaches, which it considers in detail in its Part I in order to prepare the ground for their integration in Part II of the book. In this way we inspect what types of models of disequilibrium, income distribution, and real growth we have at our disposal, as models that have proved to be of real interest and sound from a rigorous modeling perspective. Presents an introduction to basic and advanced macrodynamics, viewed as a disequilibrium theory of fluctuating growth. This title builds on an attempt to reformulate the foundations of macroeconomics from the perspective of real markets disequilibrium and the conflict over income distribution between capital and labor.