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For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and…
For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.
The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven…
The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that they are caused by fluctuations in the supply of or demand for money. Holding monetary policy as solution assumes that stability must arise from outside of the economic system. Under a policy regime that allows innovations in blockchain to develop, blockchain technology may promote a money supply that is responsive to changes in demand to hold money. The purpose of this paper is to suggest that cryptocurrencies present an opportunity to profitably implement rules that promote macroeconomic stability. In particular, cryptocurrency that is asset-backed may provide a means for cheaply attaining liquidity during a crisis.
The role of cryptocurrency in promoting macroeconomic equilibrium is approached through the lens of monetary theory. Moves away from macroeconomic equilibrium necessitate either a change in the average price of money or a change in the quantity of money, or a change in portfolio demand for money. Cryptocurrency promotes an increase, however this requires the alignment of policy regulating the use of cryptocurrency, reduction in taxes placed on the use of cryptocurrency and cryptocurrency protocol.
Cryptocurrency is unlikely to become legal tender, but it may alleviate macroeconomic fluctuations as a near money that provides liquidity and whose supply is sensitive to changes in demand to hold money and money-like substitutes. This role might be inhibited if policy stifles the development of cryptocurrencies and blockchain technology.
New financial innovations like cryptocurrencies can be analyzed applying the equation of exchange in light of the mechanics of money creation under conditions of disequilibrium. Monetary disequilibrium may be promoted by policy that causes bottlenecks in financial markets.
Theory of monetary disequilibrium has broad implications for the development and regulation of financial markets. This theory has not been applied to the development of cryptocurrency markets.
The controversy between Hayek and Keynes in the 1930s is probably one of the best‐known disputes in economics and several comments have been made on this episode (Hicks…
The controversy between Hayek and Keynes in the 1930s is probably one of the best‐known disputes in economics and several comments have been made on this episode (Hicks, 1967; Machlup, 1977; Fletcher, 1987). In the assessments little attention has been paid to the development of the ideas of the two economists, to the views they had in common and to the influence they had on each other. These aspects will be taken into consideration in this contribution with the aim of extending our knowledge of the fundamental points of disagreement between them. The crucial question is how it came about that Hayek and Keynes, who for some time studied very similar monetary problems, ended as such fierce opponents on the question of how a modern capitalist system works. Keynes went as far as denying that the market system is self‐adjusting, whereas Hayek, especially in his later writings, propounded the view that markets constitute an efficient mechanism for the satisfaction of human needs.
Austrian views on money and the gold standard are consonant with the general characteristics of the school. First, Austrians are concerned with the complete picture, with how a whole economic system and alternative sets of institutions function. They are alert to the question of unplanned order and of how the decentralised decisions and specialised activities of millions of people can mesh without central planning. They investigate how the market and prices function as a vast communications system and computer, transmitting information and incentives and so enlisting knowledge scattered over many millions of minds that would otherwise necessarily go to waste. They recognise why accurate economic calculation is impossible under socialism. Second, the Austrians appreciate the implications of incomplete, imperfect and scattered knowledge and also the implications of change and unpredictability in human affairs. They pay attention to disequilibrium, to processes as well as end positions, and to entrepreneurial altertness and creativity. Instead of supposing, for example, that cost curves and demand curves are somehow “given” to business decision makers, they recognise it as one of the functions of the competitive process to press for discovery of ways to get the cost curves down — if one speaks of such curves at all. Third, Austrians have certain methodological predilections. They reject the tacit view of economic activity as the result of interplay among objective conditions and impersonal forces. They take pains to trace their analyses back to the subjective perceptions, decisions and actions of individuals trying to cope with a complex and unpredictably changeable world; they recognise introspection as one legitimate source of the facts underpinning economic theory. (While thus practising methodological individualism, they do not subordinate the big question of system‐wide co‐ordination to an excessively narrow focus on the administration of individual firms and households.) Finally, although Austrians like to think of their economics as value‐free and not logically tied to any particular policy position, their insights into positive economics, coupled with plausible value judgements of a humanitarian and individualistic nature, undeniably do lead them to favour free markets.
The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual…
The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.
The economic science is again in a crisis and a new solution prolegomena to any future study in economics, finance and other social sciences has just been published by the…
The economic science is again in a crisis and a new solution prolegomena to any future study in economics, finance and other social sciences has just been published by the International Institute of Social Economics in care of the MCB University Press in England. The roots of the major financial and economic problems of our time lie in an open conflict between theory and practice. In the 1930s and before the conflict was between classical theory and given realities. In the 1990s the conflict appears between the now prevailing modern, Keynesian theory and the actual realities. In addition during the twentieth century a great argument developed between the two schools of thought, argument which is not yet settled. In one sentence, the prolegomena tried and was successful to solve the conflict between theory and practice and the big doctrinal dispute of the twentieth century. It was a struggle of research and observation over half a century between 1947 and 1997.
Discusses the heritage of John Maynard Keynes in terms of application and results of his new economic philosophy over the last four decades. Compares the Keynesian school of thought with other classical and contemporary economists in relation to foundations of monetary and economic analysis, the economics of stable equilibrium, and the economics of disequilibrium. Comments on Keynes’ concept of economic stability, his view on the instability of money and monetary reform, his concept of monetary policy and of the pure theory of money, and his misjudgement of the mixed nature of the modern gold standard. Examines the provisions of the US Federal Reserve Act (1913), focusing on the Federal reserve systems’ nature and functioning, cited by Keynes as a prototype of a modern gold standard. Concludes with an examination of the international aspect of the modern gold standard.
The first Principia Mathematica (1686) by Sir Isaac Newton with reference to natural philosophy and his system of the world has largely contributed to the first revolution in scientific thinking in modern times. It has created the conceptual basis of modern science in the classical tradition by providing the tools of analysis and the technique of reasoning in terms of stability—from—within or, as we would say today, the model of stable equilibrium conditions.
Presents the first chapter in this work with regard to the search for new ideas and better interpretations in the growth and development of new ideas. Investigates the exchange of views between thinkers of different points of view. Invites co‐operation between various factions to investigate unification of all known sciences (natural and economic) and to include the arts. Mentions all the great thinkers in these areas and unreservedly discusses their contribution in the school of thought. Proffers that modern technology cannot and should not be slowed down and that for the social economy of human solidarity should be aimed for, to begin a new era for humanity.