The classical legacy and beyond

Abstract

This study is a plea for a reassessment and development of the classical legacy (Smith, Ricardo and Marx), stressing the importance of the treatment of disequilibrium. A framework of analysis is built for the study of the stability of capitalist economies which is illustrated by the example of the US economy following the Civil War. The first part briefly recalls the main aspects of the classical analysis of competition and equilibrium. The second part presents the model (in particular modeling of behaviors within disequilibrium: ‘disequilibrium microeconomics’). The third part discusses the stability of classical equilibrium in two respects: (1) the relative values of the variables (relative prices, proportions of outputs and capitals among industries), i.e. the stability in proportions, and (2) the general level of activity, i.e. the stability in dimension. We contend that capitalism is constantly maintained at the limit of its stability in dimension (stability frontier). From this property and non-linearities in the behaviors of economic agents, we derive a theory of business fluctuations. The last part, using the example of US economic history, discusses the relationship between historical tendencies (the long-term movements of the profit rate) and stability.