Flaws of Modern Economic Theory: The Origins of the Contemporary Financial-Economic Crisis
Ezra Davar
DOI: 10.4236/me.2011.21004   PDF    HTML     6,660 Downloads   13,391 Views   Citations

Abstract

The Paper shows how fundamental flaws in the modern economic theory are a central part in the formation of financial bubbles: 1) The Keynesian multiplayer is based on the substitution of the cause (the national in-come) for the effect (investment); which yields inadequate results. 2) Modern general equilibrium theory is based on the following assumptions: a) modern version of free goods conception; b) “Walras’ Law”; This is realistically absurd, as according to these assumptions, the equilibrium price of some goods and services might be equal zero. 3) Modern money theory assumes that fiat money is the only type of money, which is erroneous.

Share and Cite:

Davar, E. (2011) Flaws of Modern Economic Theory: The Origins of the Contemporary Financial-Economic Crisis. Modern Economy, 2, 25-30. doi: 10.4236/me.2011.21004.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] P. Krugman, “How did Economists Get It So Wrong?” The New York Times, 09/06/2009.
[2] E. Davar, “The Renewal Classical General Equilibrium Theory and Complete In-put-Output System Models,” Averbury, Aldershot, Sydney, 1994.
[3] J. Stiglitz, “The Triumphant Return of John May-nard Keynes,” Project Syndicate, December 1, 2008. http:// www.project-syndicate.org/commentary/stiglitz107.
[4] D. Patinkin, “Money, Interest and Prices,” Second edition, Harper & Row, New York, 1965.
[5] R. W. Clower, “The Keynesian Counterrevolution: a Theoretical appraisal” In: F. H. Hahn and F. P. R. Brechling, Eds., The Theory of Interest Rate, Macmil-lan, London, 1965.
[6] P. Davidson, “A Keynesian View of Patinkin’s Theory, of Employment,” The Economic Journal, September, Vol. 77, 1967, pp.559-578.
[7] F. H. Hahn, “On Involuntary Unemployment,” The Economic Journal, Vol. 97, Supplement, 1987, pp.1-16. doi:10.2307/3038226
[8] R. Layard, S. Nickell and R. Jack-man, “Unemployment: Macroeconomics Performance and the Labour Market,” Oxford University Press, New York, 1994.
[9] R. E. Jr. Lucas, “Unemployment Policy,” The American Economic Review, Vol. 68, No. 2, 1978, p.353-357.
[10] Ch. A. Pissarides, “Equilibrium Unemployment Theory,” Second edition, The MIT Press, Cambridge, 2000.
[11] J. B. Taylor, “Involuntary Unemployment,” In: J. Eatwell, M. Mil-gate and P. Newman, Eds., The New Palgrave Dictionary of Economics, Macmillan, Basingstoke, 1987.
[12] L. Walras, “Studies in Applied Economics Theory of the Production of Social Wealth,” Translated by J. van Daal, Two volumes, Routledge, London, 2005.
[13] J. M. Keynes, “The General Theory of Employment Interest and Money,” Macmillan, Lon-don, 1936.
[14] J. A. Trevithick, “The Monetary Pre-requisiedes for the Multiplier: An Adumbration of the Crowd-ing-out Hypothesis,” Cambridge Journal of Economics, Vol. 18, No. 1, 77-90.
[15] J. M. Keynes, “The Collective Writings of John Maynard Keynes,” In: D. Moggridge, Ed., The General Theory and After, Part II, Macmillan, London, 1973.
[16] J. C. W. Ahiakpor, “Classical Macroeconomics some modern varia-tions and distortions,” Routledge, London, 2003.
[17] H. Hazlitt, “The Failure of the “New Economics’,” Princeton, NJ, 1959.
[18] J. R. Hicks, “Mr. Keynes and the “Classics”: A Suggested Interpretation,” Econometrica, Vol. 5, No. 2, 1959, pp. 147-59. doi:10.2307/1907242
[19] J. R. Hicks, “The Crisis in Keynesian Economics,” Basil Blackwell, Oxford, 1974.
[20] R. Kahn, “The Relation of Home Investment to Unemployment,” Economic Journal, Vol. 41, No. 162, 1931, pp. 173-98. doi:10.2307/2223697
[21] N. G. Mankiw, “Mac-roeconomics,” Third Edition, Worth Publishers, New York, 1997.
[22] R. J. Shiller, Stimulus, “Without More Debt,” New-York Times, December 2010.
[23] M. M. Morishima, “Capital, and Credit: a New Formulation of General Equilib-rium Theory,” Cambridge University Press, Cambridge, 1992.
[24] A. Rosenberg, “If Economics isn’t Science, What is It?” In: The Philosophy and Methodology Economics III, Ed-ward Elgar, Aldershot, England, 1993.
[25] L. Walras, “The-ory of Pure Economics,” Translated by W. Jaffe, Allen and Unwin, London, 1954.
[26] K. J. Arrow, “Von Neumann and the Existence Theorem for General Equilibrium,” In: M. Dore, Ed., John von Neumann and Modern Economics, Clarendon Press, Oxford, 1989.
[27] K. J. Arrow and F. H. Hahn, “Gen-eral Competitive Analysis,” Holden-Day, INC, San Francisco, 1971.
[28] Arrow, K. J. and D. Starrett, “Cost-theoretical and Demand-theoretical Approaches to the Theory of Price Deter-mination,” In: J. R. Hicks and W. Weber, Eds., Carl. Menger and Austrian School of Economics, Clarendon Press, Oxford, 1973.
[29] M. Morishima, “Walras’ Economics: A Pure The-ory of Capital and Money,” Cambridge University Press, Cam-bridge and New York, 1977.
[30] D. A. Walker, “Walrasian Economics,” Cambridge University Press, Cambridge, 2006.
[31] A. Smith, “The Wealth of Nations, Random House,” INC, 1937.
[32] M. Friedman and A. J. Schwartz. “Has Government Any Role in Money?” Journal of Monetary Economics, Vol. 17, No. 1, 1986, pp. 32-62. doi:10.1016/0304-3932(86)90005-X
[33] M. Woodford, “In-terest and Prices: Foundations of a Theory of Monetary Pol-icy,” Princeton University Press, Princeton, NJ, 2003.
[34] W. Baumol, “Entrepreneurship and Innovation: The (Micro) The-ory of Price and Profit,” File: Entpricetheory- w-apr-4-2007
[35] R. W. Clower, “A Reconsideration of the Microfoundations of Monetary Theory,” Western Economic Journal, Vol. 6, No. 1, 1967, pp. 1-8.
[36] P. A. Samuelson, “What Classical and Neoclassical Mo- netary Theory Really was,” The Canadian Journal of Economics / Revue canadienne d’Economique, Vol. 1, No. 1, 1968, pp. 1-15. doi:10.2307/133458

Copyright © 2024 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.