Economic Theory in Historical Perspective

Abstract

On the methodological plain, this paper outlines the conditions that contribute to the development of economic theories and it continues with an examination of the concrete circumstances that gave rise to modern neoclassical macroeconomic theories. The paper further claims that the current impasse in macroeconomics is indicative of the need for new directions in economic theory which becomes imperative in the long economic downturn that started in 2007 and concludes by suggesting the need for a synthesis between the classical analysis and the theory of effective demand. JEL Classifications: B10, B12, B13, B22, B41Key Words: classical approach, neoclassical theory, theory of value, effective demand, paradigm change.1 I am indebted to Sean Homer, Theodore Mariolis, Panagiotis Michaelides, Aris Papageorgiou, Nicholas Theocarakis, Persefoni Tsaliki for their helpful and constructive comments on earlier versions of the paper. The usual disclaimer applies.2

The ‘new golden age of accumulation’, the new depression and the Greek economy

“…These measures would be absolutely necessary, regardless of the decision to remain or not in the EZ. The current situation, unfortunately, may be described as a catch-22 predicament, where the government cannot lower the basic wage any further, without social upheaval; this situation may be characterized as a "wage trap" (Tsoulfidis, 2010 and2011). On the other hand, the government, or what amounts to the same thing, the European Central Bank cannot further reduce, in any significant way, the interest rate without creating economic chaos; this situation is known as "liquidity trap".…”

Economic theory in historical perspective

“…The capitalist's direct involvement in the production process and other related activities was limited and the management of the newly created large-scale enterprises was transferred to a small group of owners or professionals (see also Chandler, 1977 andSchumpeter, 1942). As a consequence, Lefteris Tsoulfidis (2017), 'Economic theory in historical perspective', The Journal of Philosophical Economics: Reflections on Economic and Social Issues, X: 2, 102-124 the capitalist class was transformed, to a great extent, into a mere recipient of profit incomes by virtue of property rights in a way very similar to that of landlords. Naturally, under these new conditions, it became clear that profit income could not find justification in a labour content explanation of equilibrium prices, other than some form of exploitation of labour.…”

“…The extensive use of mathematics and also of neutral language that one finds in the writings of the major representatives of this approach served to underscore this purpose (Mirowski, 1984). Indeed, these efforts were highly Lefteris Tsoulfidis (2017), 'Economic theory in historical perspective', The Journal of Philosophical Economics: Reflections on Economic and Social Issues, X: 2, 102-124 successful in elevating neoclassical economics to a dominant position, albeit, at the expense of drifting further away from the real economies and the way they operate.…”

“…Lefteris Tsoulfidis (2017), 'Economic theory in historical perspective', The Journal of Philosophical Economics: Reflections on Economic and Social Issues, X: 2, 102-124 household decision, the monetarists argue, is further encouraged by governmental intervention in the labour markets. The solution to the problem of high unemployment is simply no government intervention and free operation of markets.…”

“…Lefteris Tsoulfidis (2017), 'Economic theory in historical perspective', The Journal of Philosophical Economics: Reflections on Economic and Social Issues, X: 2, 102-124 made of, that is, the neoclassical microeconomics and also the conception of competition not as a process but rather as an end state make these macroeconomic approaches questionable and as they fail to provide satisfactory solutions make the macroeconomics to stay in conditions of flux a condition that remains there since the end of the golden stage of accumulation in the late 1960s. Finally, this monetary policy exercise inspired by the new consensus macroeconomics may only be meaningful when the inflation and interest rates are at low levels.…”