Revolution In Economic Thinking Research Articles

MICHAŁ KALECKI’S SCIENTIFIC LEGACY AS A MODEL FOR UNDERSTANDING CONTEMPORARY CRISES

Recurring crises slowing down economic activities and the resulting consequences paint the picture of modern economies. Therefore, it seems justified to draw on the achievements of economics with a view to explaining the causes of socio-economic crises. The article uses a descriptive method. The objective of the article is to understand the substance of the phenomenon; therefore, the author seeks certain analogies in the past and refers to the work of the Polish scholar Michał Kalecki. The basic conclusion of the article is: J.M. Keynes built a new macroeconomic theory based on the fundamental proposition that manufacturers’ supply (the levels of national income and employment) depended on aggregate demand. In the mid-1930s, a similar thought was formulated by Poland’s most eminent economist, Michał Kalecki. He constructed his business cycle model based on the aforementioned fundamental proposition. It meant that profits and national income were determined by effective investor and consumer demand. J.M. Keynes’s and M. Kalecki’s stressing the pivotal role of aggregate demand was a revolution in economic thinking. It should be noted that the COVID-19 pandemic is not merely a short-term change in economic activity. As predicted by various international institutions, it will have a lasting impact on the functioning of the global economy.

Thomas Piketty’s capitalism revisited

Thomas Piketty?s international best selling Capital in the Twenty-First Century lays out his theory of a long-run rise in income inequality under capitalism. It is written as a manifesto urging reintegration of social sciences. A number of reviewers judged it on ideological grounds, labeling it either as a revolution in economic thinking, or dismissing it offhandedly. Piketty?s theory of rising inequality is based on the two Fundamental Laws of Capitalism, developed after the Solow growth model. However, this model is inconsistent with Piketty?s own characterization of modern capitalism. Moreover, his sole justification for the constant discrepancy between rate of return and rate of income growth (r > g) is based on the high elasticity of substitution between capital and labor. However, that is just one factor that can have an influence on factor income shares. By failing to offer a consistent theory of rising inequality, his piece can hardly be considered as a useful founding stone for a new social science.

TESTING RATIONAL EXPECTATIONS HYPOTHESIS IN THE MANUFACTURING SECTOR IN MALAYSIA

The application of rational expectations hypothesis (REH) in macroeconomic research has marked a revolution in economic thinking, and the magnitude of its impact on the world of economics is undeniably significant. However, the extent to which REH applies in real-world settings is ambiguous even though the concept of REH is well established in economics literature because empirical evidence from previous studies is clearly mixed. This study used survey data on gross revenue and capital expenditures to examine the validity of REH in Malaysian manufacturing business expectations. Empirical results indicated that the manufacturers’ expectations are being irrationally constructed in terms of gross revenue predictions but comply with REH properties in Muth's sense in the case of capital expenditures forecasts. Therefore, manufacturing firms in Malaysia are encouraged to incorporate more relevant information into their gross revenue predictions to provide more accurate and realistic forecasting.

Three Centuries of Macro-Economic Statistics

This paper describes the history of the national accounts starting from the incidental estimates by Petty, King and Davenant in the seventeenth century. The period 1930-1950 was a revolution in terms of the roles and uses of the national accounts, e.g. the discovery of input-output analysis, purchasing power parities and macro-econometric modelling and the Keynesian revolution in economic thinking. Most of these new uses also reinforced each other. These uses were also closely linked to the economic circumstances: the economic crisis of the thirties, the Second World War and the need for recovery afterwards stimulated an active role of the government. In 1947, for the first time a report on national accounting concepts was published by the UN. Some years later, the first official guidelines were published. Since then, national accounting theory and practice have increasingly been dominated by these guidelines. The period since the Second World War can thus best be labelled as 'the era of the international guidelines'. Many innovations in national accounting have been made since the Second World War. After gaining wider acceptance and maturity, a great deal of them has been included in the guidelines and some others have not. Since the Second World War, the national accounts statistics published by countries all over the world have changed drastically in scope, concepts, frequency and detail. These developments in national accounts practice do not have a straightforward relationship to the international guidelines. Due to the European Unification, the supply of national accounts in Europe has been improved dramatically.

BOOK REVIEWS

OPTIMIZATION METHODS FOR A STAKEHOLDER SOCIETY Reviewed book: Willem K. Brauers. Optimization Methods for a Stakeholder Society: A Revolution in Economic Thinking by Multi‐objective Optimization. Boston / Dordrecht / London: Kluwer Academic Publishers, 2004.

A critique of pure reason and of practical reason in economics: on the threshold of a third revolution in economic thinking

Looks at the impact John Maynard Keynes and the movement (Keynesian) he started had on the theory and practice of economics in the 1930s and onwards. Identifies respective problems about capitalism and discusses them in depth. States that the monetary and fiscal policies recommended by Keynes have helped the West escape severe social consequences in the aftermath of the Great Depression. Goes on to show how economists after Keynes carried his work forward and upward in the 1940s and 1950s. Closes by stating there is a further, third revolution in economic thinking on the rise.

Is there anything new to be said after Adam Smith, Marx, Walras and Keynes?

Argues that none of the basic problems in the science of economics and finance have been properly solved. Discusses the basic problems in theory and practice, in particular with the monetary system. Adds much to the teachings of Smith, Marx, Walras and Keynes and is even critical of Friedman. Proposes a “Third revolution in economic thinking”, where problems are studied in terms of a simultaneous synthesis between modern, pure empirical and classical, pure analytical economics.

An American‐British economic, monetary, financial and social stabilization plan

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 Third Revolution in Economic Thinking: Social Economy in a New Perspective

Why do we need a third revolution in economics? As a starting point it must be noticed that every school has its own methodology and ideology. Its characteristic is to deal with one single problem which, right or wrong, is considered fundamental. Sometimes the importance of a school lies in the problem raised rather than in the answers given to such a problem.

Toward a Third Revolution in Economic Thinking:

Pantaleoni used to say that there are two categories of economists—those who can, in the sense of being able to produce original work, and those who cannot. A more meaningful and more useful distinction can be made between those who reason about the given problems in terms of stable equilibrium (most of them classicists) and those who do their thinking in terms of unstable equilibrium (actually stable disequilibrium) and sheer disequilibrium (most of them modern and contemporary scientists).