By Colin Rogers
This ebook provides a learn within the foundations of economic idea with a number of targeted positive factors. It involves elements: a critique of the types of neoclassical financial idea, and a rigorous assertion of the rules of submit Keynesian financial concept. the 2 elements mirror Joseph Schumpeter's contrast among financial theories within the divergent traditions of genuine and fiscal research. half I bargains a singular critique of Wicksellian and neo-Walrasian basic equilibrium types of genuine research. The critique of Wicksell's financial concept demonstrates the final impossibility of defining the normal interest rate with no which the loanable cash idea collapses. The critique of neo-Walrasian financial idea, nevertheless, exploits the inessential position of 'money' in transitority equilibrium and overlapping generations types and develops a unique interpretation of the Patinkin controversy and the Clower finance constraint. the consequences of those advancements are then traced during the debates among monetarists and Keynesians. half II provides a rigorous argument for securing the principles of publish Keynesian financial concept within the culture of economic research. within the context of the evolution of the financial procedure from commodity funds to credits funds. Wicksell's normal interest rate is changed by way of Keynes's marginal potency of capital that is in flip utilized to Myrdal's proposal of financial equilibrium to derive a proper definition of Keynes's element of potent call for. This ends up in the main novel characteristic of the ebook: the demonstration of the life of a long-run unemployment equilibrium with no the assumptions of inflexible wages. the primary of potent call for is proven to damage Say's legislations by means of putting a restrict at the ecocnomic enlargement of output ahead of complete employment is reached.
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Additional info for Money, Interest and Capital: A Study in the Foundations of Monetary Theory
Alternatively, if banks maintain the interest rate at i then wages and prices in the building industry will fall as workers and builders attempt to find employment. Wicksell argues, therefore, that it is not sufficient to look only at movements in the money rate of interest to determine the effect on commodity prices. It is movements in the money rate relative to the natural rate that are important. In the above examples a fall in the money rate to meet the natural rate did not cause any price changes while a stationary money rate resulted in a fall in prices because it lay above the then lower natural rate.
The difficulty here is that the value of capital cannot be treated as an exogenous variable in the production function or a Wicksellian general equilibrium model because capital as a value magnitude is a function of prices which are endogenous variables. As Petri (1978: 252) notes, Wicksell was aware of this danger. While discussing his theory of exchange value in its final form, Wicksell (1901,1: 202) observed that, 'it would clearly be meaningless - if not altogether inconceivable - to maintain that the amount of capital is already fixed before equilibrium between production and consumption has been achieved.
But even then the production functions still contain only current and saved-up labour and land. It seems that Wicksell (1901, I: 203) is ambivalent about the attempt to introduce capital as a value magnitude into the production function directly. Later neoclassical economists have been less cautious, with the consequences revealed by the capital theory debates. e. saved-up land and labour, inevitably leads us to examine the relationship between Wicksell's treatment of capital and the issues raised by the capital debate.