Research ArticleOpen AccessGoogle Scholar indexed
Flaws of Modern Economic Theory: The Origins of the Contemporary Financial-Economic Crisis
- 1
Copy link · social · email
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.
KeywordsFlaws of Modern Economic TheoryKeynes’s MultiplierModern General Equilibrium TheoryModern Money TheorySmithWalrasKeynes
- P. Krugman, “How did Economists Get It So Wrong?” The New York Times, 09/06/2009.
- E. Davar, “The Renewal Classical General Equilibrium Theory and Complete In-put-Output System Models,” Averbury, Aldershot, Sydney, 1994.
- J. Stiglitz, “The Triumphant Return of John May-nard Keynes,” Project Syndicate, December 1, 2008. http:// www.project-syndicate.org/commentary/stiglitz107.
- D. Patinkin, “Money, Interest and Prices,” Second edition, Harper & Row, New York, 1965.
- 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.
- P. Davidson, “A Keynesian View of Patinkin’s Theory, of Employment,” The Economic Journal, September, Vol. 77, 1967, pp.559-578.
- F. H. Hahn, “On Involuntary Unemployment,” The Economic Journal, Vol. 97, Supplement, 1987, pp.1-16. doi:10.2307/3038226
- R. Layard, S. Nickell and R. Jack-man, “Unemployment: Macroeconomics Performance and the Labour Market,” Oxford University Press, New York, 1994.
- R. E. Jr. Lucas, “Unemployment Policy,” The American Economic Review, Vol. 68, No. 2, 1978, p.353-357.
- Ch. A. Pissarides, “Equilibrium Unemployment Theory,” Second edition, The MIT Press, Cambridge, 2000.
- J. B. Taylor, “Involuntary Unemployment,” In: J. Eatwell, M. Mil-gate and P. Newman, Eds., The New Palgrave Dictionary of Economics, Macmillan, Basingstoke, 1987.
- L. Walras, “Studies in Applied Economics Theory of the Production of Social Wealth,” Translated by J. van Daal, Two volumes, Routledge, London, 2005.
- J. M. Keynes, “The General Theory of Employment Interest and Money,” Macmillan, Lon-don, 1936.
- 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.
- J. M. Keynes, “The Collective Writings of John Maynard Keynes,” In: D. Moggridge, Ed., The General Theory and After, Part II, Macmillan, London, 1973.
- J. C. W. Ahiakpor, “Classical Macroeconomics some modern varia-tions and distortions,” Routledge, London, 2003.
- H. Hazlitt, “The Failure of the “New Economics’,” Princeton, NJ, 1959.