Shaking the Invisible Hand: Complexity, Choices and Critiques

Cover......Page 0
Contents......Page 1
List of Tables......Page 6
List of Figures......Page 7
Preamble: Complex Systems......Page 10
Preface: Complex Adaptive Systems (CAS)......Page 12
Part I: Complexity and Economics......Page 23
1.1 Introduction: Marshall's tidal metaphor......Page 25
1.2 Haavalmo's probability revolution: "Let the data decide"......Page 28
1.3 Keynes' skepticism: unobservable variables......Page 29
1.4 Conclusions: the economy is a complex system......Page 32
2 Complexity and Contingency......Page 35
2.1 An introduction to complex adaptive systems......Page 36
2.2 Some unique characteristics of complex adaptive systems: emergent properties, self-organized criticality, and sandpiles......Page 39
2.3 The relational structure of complex adaptive systems......Page 42
2.4 Science and complexity......Page 44
2.5 Challenges to modeling complex adaptive systems......Page 47
2.6 Are there limits to what we can know?......Page 50
2.7 The human brain......Page 51
2.8 Conclusions: an ode to pluralism......Page 55
Appendix: the Copenhagen interpretation......Page 58
Bibliography on complexity and chaos......Page 61
3.1 Chaos theory......Page 65
3.2 Application of chaos theory......Page 71
3.3 The innate instability of economic variables......Page 78
3.4 Determinism and predictability......Page 81
3.5 Five nontraditional truths......Page 87
3.6 Postmodernism and economics......Page 90
Appendix: prediction and domination......Page 94
4.1 The absence of a stable structure and pervasiveness of contingency......Page 97
4.2 A brief survey of the econometric analysis of business cycles......Page 99
4.3 The methodology of modern econometrics......Page 107
4.4 The importance of stationarity......Page 116
4.5 Are economic time series time stationary or difference stationary?......Page 118
4.6 Conclusions: complex systems can be simulated but never solved......Page 124
5.1 Tensions in neoclassical economics......Page 126
5.2 "Misplaced concreteness" in neoclassical theory......Page 130
5.3 The non-probabilistic nature of fundamental uncertainty......Page 134
5.4 The case against equilibrium analysis......Page 141
5.5 Process analysis......Page 144
Part II: Some Thoughts on Economic Data and National Income Accounting......Page 151
6.1 The importance of quantification......Page 153
6.2 Sorites' dilemma: "loose" concepts......Page 154
6.3 Measurement in economics: "the excluded middle"......Page 156
6.4 The measurement and quantification of economic concepts......Page 158
6.5 The mismeasurement of National Income......Page 160
6.6 Eisner's total incomes system of accounts......Page 166
6.7 Unemployment, price levels, inflation rates, and growth rates......Page 172
6.8 Conclusions: where must we draw the line?......Page 176
7.1 Volitional and non-volitional saving......Page 178
7.2 Saving is identical to investment......Page 181
7.3 Widening the model: the government sector......Page 184
7.4 Words and terms: "saving" in economics is intransitive......Page 186
7.5 Volitional and non-volitional saving......Page 189
7.6 Conclusions: saving is the accounting record of investment......Page 192
8 Capital Gains: Towards a Hicksian Definition of Income......Page 196
8.1 Most saving is non-volitional......Page 197
8.2 Hicksian income......Page 199
8.3 A Proposal for a "Capital Gains and Losses Addendum" to National Income Accouting......Page 205
8.4 Estimates of Hicksian income......Page 210
8.5 Conclusions: Hicksian income and saving behavior......Page 214
Part III: The Endogeneity of Money and Exogeneity of Interest Rates......Page 217
9 The Endogeneity of Credit Money......Page 219
9.1 Commodity, fiat, and credit money......Page 220
9.2 The money-multiplier identity......Page 224
9.3 The endogeneity of the high-powered base......Page 227
9.4 Central Banks: the ultimate supplier of system liquidity......Page 230
9.5 Conclusions: credit money and "convenience lending"......Page 234
10 Commercial Bank Intermediation......Page 237
10.1 Commercial banks as retailers of credit......Page 238
10.2 Bank finance of working capital......Page 244
10.3 A model of bank intermediation......Page 246
10.4 The supply of credit money is endogenously demand-determined......Page 252
10.5 Money market mutual funds......Page 257
10.6 Conclusions: "horizontalism"......Page 258
11.1 Different theories of interest......Page 260
11.2 Central Bank interest rate setting behavior......Page 263
11.3 The US reserve supply process......Page 265
11.4 The new consensus on monetary policy......Page 269
11.5 Conclusions: bank rate is the exogenous policy instrument of the Central Bank......Page 274
Appendix: Keynes' changing views on interest rates......Page 277
Part IV: The Determination of Prices, Output, and Growth Rates......Page 281
12.1 The impossibility of maximization......Page 283
12.2 Markup pricing: the Post Keynesian theory of the firm......Page 284
12.3 The limitations of empirical analysis......Page 290
12.4 Survey evidence......Page 292
12.5 The Post Keynesian theory of pricing......Page 297
12.6 Conclusions: as a "stylized fact" the aggregate supply (AS) curve may be viewed as horizontal......Page 300
13.1 The five "core" propositions of mainstream macroeconomics......Page 303
13.2 A critique of the mainstream "core"......Page 308
13.3 A fundamental critique of the mainstream theory of income determination......Page 311
13.4 Post Keynesian AS–AD analysis......Page 322
13.5 Conclusions: the central importance of changes in "animal spirits"......Page 323
14.1 The Post Keynesian case for aggregate demand management......Page 325
14.2 IS–LM analysis and the BR–AD diagram......Page 329
14.3 Process analysis: the BR–ΔAD diagram......Page 331
14.4 Process analysis: the ΔBR–ΔAD diagram......Page 335
14.5 The interest elasticity of aggregate demand......Page 338
14.6 The Japanese conondrum......Page 342
14.7 Conclusions: changes in Bank Rate are a good proxy for changes in "animal spirits"......Page 349
15.1 The central role of monetary policy in AD growth......Page 353
15.2 Internal balance constraints on reducing Bank Rate to R[sub(F)]......Page 362
15.3 External balance constraints on reducing Bank Rate to R[sub(F)]......Page 367
15.4 Insufficient "saving" is never a constraint on investment......Page 370
15.5 The short run "exogeneity" and long run "endogeneity" of Bank Rate......Page 374
16.1 Process analysis of how aggregate demand grows over time......Page 381
16.2 "Convenience lending": the non-volitional finance of deficit-spending......Page 385
16.3 "Convenience lending" and "convenience saving"......Page 388
16.4 The demise of the Keynesian "multiplier"......Page 392
16.5 The Quantity Theory of Money......Page 397
16.6 The simultaneous achievement of internal and external balance......Page 399
Appendix: A critique of the Quantity Theory of Money......Page 400
Part V: Open Economy Considerations......Page 405
17.1 Open Economy Macroeconomics......Page 407
17.2 Consistent capital budget accounting for open economies......Page 411
17.3 The classical view of balance of payments adjustment......Page 418
17.4 The Keynesian view of balance of payments adjustment......Page 420
17.5 Keynes' proposal for an international clearing union (ICU)......Page 425
17.6 Conclusions: the Bretton Woods system—success and failure......Page 427
18 Using National Currencies in International Transactions: the Case for Flexible Exchange Rates......Page 431
18.1 The current international payments system: flexible exchange rates......Page 432
18.2 The case for flexible exchange rates......Page 433
18.3 The case against flexible exchange rates......Page 435
18.4 Endogenous speculation in flexible exchange rate regimes......Page 442
18.5 The deflationary bias in the current flexible exchange rates regime......Page 446
18.6 Empirical estimates of the deflationary bias......Page 450
19 Using a Common Currency in International Transactions: the Post Keynesian Case for No Exchange Rates......Page 455
19.1 The Choice of a national payments medium: a critically important policy decision......Page 456
19.2 Efficiency gains from a common currency......Page 461
19.3 Stabilization gains from a common currency......Page 463
19.4 Post Keynesian open economy macroeconomics......Page 464
19.5 Currency unions......Page 468
19.6 Dollarization and Euroization......Page 471
20.1 Why market economies are demand-constrained?......Page 476
20.2 Neoclassical supply-side models of economic growth......Page 478
20.3 Post Keynesian demand-led models of economic growth......Page 482
20.4 A demand-side explanation for the low growth rates of African economies......Page 485
20.5 Conclusions......Page 494
Notes......Page 496
Bibliography......Page 544
B......Page 569
C......Page 570
E......Page 571
G......Page 572
I......Page 573
M......Page 574
N......Page 575
Q......Page 576
T......Page 577
Z......Page 578