Shaking the Invisible Hand Complexity, Choices and Critiques

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ISBN: 9781403999467 | 1403999465
Cover: Hardcover
Copyright: 4/30/2006

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Shaking the Invisible Hand makes the case that economies are complex systems and in response to this, develops a unique dynamic nonequilibrium process analysis of macroeconomics. It provides a brief introduction to complex systems, chaos theory and unit roots. The importance and implications of contingency for economic behaviour are developed. Moore develops a new tool of 'Process Analysis' to replace equilibrium analysis in order to analyze macroeconomic phenomena in historical time.

List of Tables

List of Figures

Preamble: Complex Systems

xiv

Preface: Complex Adaptive Systems (CAS)

xvi

Part I Complexity and Economics

1 Marshall's Tides

(10)

1.1 Introduction: Marshall's tidal metaphor

(3)

1.2 Haavalmo's probability revolution: "Let the data decide"

(1)

1.3 Keynes' skepticism: unobservable variables

(3)

1.4 Conclusions: the economy is a complex system

(3)

2 Complexity and Contingency

(30)

2.1 An introduction to complex adaptive systems

(3)

2.2 Some unique characteristics of complex adaptive systems: emergent properties, self-organized criticality, and sandpiles

(3)

2.3 The relational structure of complex adaptive systems

(2)

2.4 Science and complexity

(3)

2.5 Challenges to modeling complex adaptive systems

(3)

2.6 Are there limits to what we can know?

(1)

2.7 The human brain

(4)

2.8 Conclusions: an ode to pluralism

(3)

Appendix: the Copenhagen interpretation

(3)

Bibliography on complexity and chaos

(4)

3 Chaos Theory: Unpredictable Order in Chaos

(32)

3.1 Chaos theory

(6)

3.2 Application of chaos theory

(7)

3.3 The innate instability of economic variables

(3)

3.4 Determinism and predictability

(6)

3.5 Five nontraditional truths

(3)

3.6 Postmodernism and economics

(4)

Appendix: prediction and domination

(3)

4 Econometrics, Data Mining, the Absence of a Stable Structure and the Pervasiveness of Contingency

(29)

4.1 The absence of a stable structure and pervasiveness of contingency

(2)

4.2 A brief survey of the econometric analysis of business cycles

(8)

4.3 The methodology of modern econometrics

(9)

4.4 The importance of stationarity

(2)

4.5 Are economic time series time stationary or difference stationary?

(6)

4.6 Conclusions: complex systems can be simulated but never solved

102

(2)

5 The Implications of Complexity for Economic Analysis

104

(27)

5.1 Tensions in neoclassical economics

104

(4)

5.2 "Misplaced concreteness" in neoclassical theory

108

(4)

5.3 The non-probabilistic nature of fundamental uncertainty

112

(7)

5.4 The case against equilibrium analysis

119

(3)

5.5 Process analysis

122

(9)

Part II Some Thoughts on Economic Data and National Income Accounting

6 Sorites' Paradox: the "Looseness" of Economic Concepts

131

(25)

6.1 The importance of quantification

131

(1)

6.2 Sorites' dilemma: "loose" concepts

132

(2)

6.3 Measurement in economics: "the excluded middle"

134

(2)

6.4 The measurement and quantification of economic concepts

136

(2)

6.5 The mismeasurement of National Income

138

(6)

6.6 Eisner's total incomes system of accounts

144

(6)

6.7 Unemployment, price levels, inflation rates, and growth rates

150

(4)

6.8 Conclusions: where must we draw the line?

154

(2)

7 Saving is the Accounting Record of Investment

156

(18)

7.1 Volitional and non-volitional saving

156

(3)

7.2 Saving is identical to investment

159

(3)

7.3 Widening the model: the government sector

162

(2)

7.4 Words and terms: "saving" in economics is intransitive

164

(3)

7.5 Volitional and non-volitional saving

167

(3)

7.6 Conclusions: saving is the accounting record of investment

170

(4)

8 Capital Gains: Towards a Hicksian Definition of Income

174

(23)

8.1 Most saving is non-volitional

175

(2)

8.2 Hicksian income

177

(6)

8.3 A Proposal for a "Capital Gains and Losses Addendum" to National Income Accounting

183

(5)

8.4 Estimates of Hicksian income

188

(4)

8.5 Conclusions: Hicksian income and saving behavior

192

(5)

Part III The Endogeneity of Money and Exogeneity of Interest Rates

9 The Endogeneity of Credit Money

197

(18)

9.1 Commodity, fiat, and credit money

198

(4)

9.2 The money-multiplier identity

202

(3)

9.3 The endogeneity of the high-powered base

205

(3)

9.4 Central Banks: the ultimate supplier of system liquidity

208

(4)

9.5 Conclusions: credit money and "convenience lending"

212

(3)

10 Commercial Bank Intermediation

215

(23)

10.1 Commercial banks as retailers of credit

216

(6)

10.2 Bank finance of working capital

222

(2)

10.3 A model of bank intermediation

224

(6)

10.4 The supply of credit money is endogenously demand-determined

230

(5)

10.5 Money market mutual funds

235

(1)

10.6 Conclusions: "horizontalism"

236

(2)

11 The Exogeneity of Interest Rates

238

(23)

11.1 Different theories of interest

238

(3)

11.2 Central Bank interest rate setting behavior

241

(2)

11.3 The US reserve supply process

243

(4)

11.4 The new consensus on monetary policy

247

(5)

11.5 Conclusions: bank rate is the exogenous policy instrument of the Central Bank

252

(3)

Appendix: Keynes' changing views on interest rates

255

(6)

Part IV The Determination of Prices, Output, and Growth Rates

12 Markup Pricing and the Aggregate Supply Relationship

261

(20)

12.1 The impossibility of maximization

261

(1)

12.2 Markup pricing: the Post Keynesian theory of the firm

262

(6)

12.3 The limitations of empirical analysis

268

(2)

12.4 Survey evidence

270

(5)

12.5 The Post Keynesian theory of pricing

275

(3)

12.6 Conclusions: as a "stylized fact" the aggregate supply (AS) curve may be viewed as horizontal

278

(3)

13 The "Raffishness" of Mainstream Macroeconomics: a Post Keynesian Critique

281

(22)

13.1 The five "core" propositions of mainstream macroeconomics

281

(5)

13.2 A critique of the mainstream "core"

286

(3)

13.3 A fundamental critique of the mainstream theory of income determination

289

(11)

13.4 Post Keynesian AS—AD analysis

300

(1)

13.5 Conclusions: the central importance of changes in "animal spirits"

301

(2)

14 Interest Rates and Aggregate Demand

303

(28)

14.1 The Post Keynesian case for aggregate demand management

303

(4)

14.2 IS—LM analysis and the BR—AD diagram

307

(2)

14.3 Process analysis: the BR—SAD diagram

309

(4)

14.4 Process analysis: the ABR—SAD diagram

313

(3)

14.5 The interest elasticity of aggregate demand

316

(4)

14.6 The Japanese conondrum

320

(7)

14.7 Conclusions: changes in Bank Rate are a good proxy for changes in "animal spirits"

327

(4)

15 Monetary Policy: Non-Volitional and Volitional Saving

331

(28)

15.1 The central role of monetary policy in AD growth

331

(9)

15.2 Internal balance constraints on reducing Bank Rate to RF

340

(5)

15.3 External balance constraints on reducing Bank Rate to RI

345

(3)

15.4 Insufficient "saving" is never a constraint on investment

348

(4)

15.5 The short run "exogeneity" and long run "endogeneity" of Bank Rate

352

(7)

16 The Monetary Transmission Process

359

(26)

16.1 Process analysis of how aggregate demand grows over time

359

(4)

16.2 "Convenience lending": the non-volitional finance of deficit-spending

363

(3)

16.3 "Convenience lending" and "convenience saving"

366

(4)

16.4 The demise of the Keynesian "multiplier"

370

(5)

16.5 The Quantity Theory of Money

375

(2)

16.6 The simultaneous achievement of internal and external balance

377

(1)

Appendix: A critique of the Quantity Theory of Money

378

(7)

V Open Economy Considerations

17 Using National Currencies in International Trade: the Case for Fixed Exchange Rates

385

(24)

17.1 Open Economy Macroeconomics

385

(4)

17.2 Consistent capital budget accounting for open economies

389

(7)

17.3 The classical view of balance of payments adjustment

396

(2)

17.4 The Keynesian view of balance of payments adjustment

398

(5)

17.5 Keynes' proposal for an international clearing union (ICU)

403

(2)

17.6 Conclusions: the Bretton Woods system—success and failure

405

(4)

18 Using National Currencies in International Transactions: the Case for Flexible Exchange Rates

409

(24)

18.1 The current international payments system: flexible exchange rates

410

(1)

18.2 The case for flexible exchange rates

411

(2)

18.3 The case against flexible exchange rates

413

(7)

18.4 Endogenous speculation in flexible exchange rate regimes

420

(4)

18.5 The deflationary bias in the current flexible exchange rates regime

424

(4)

18.6 Empirical estimates of the deflationary bias

428

(5)

19 Using a Common Currency in International Transactions: the Post Keynesian Case for No Exchange Rates

433

(21)

19.1 The Choice of a national payments medium: a critically important policy decision

434

(5)

19.2 Efficiency gains from a common currency

439

(2)

19.3 Stabilization gains from a common currency

441

(1)

19.4 Post Keynesian open economy macroeconomics

442

(4)

19.5 Currency unions

446

(3)

19.6 Dollarization and Euroization

449

(5)

20 Financial Barriers to Demand-led Growth

454

(20)

20.1 Why market economies are demand-constrained?

454

(2)

20.2 Neoclassical supply-side models of economic growth

456

(4)

20.3 Post Keynesian demand-led models of economic growth

460

(3)

20.4 A demand-side explanation for the low growth rates of African economies

463

(9)

20.5 Conclusions

472

(2)

Notes

474

(48)

Bibliography

522

(25)

Index

547

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Shaking the Invisible Hand Complexity, Choices and Critiques

Summary

Author Biography

Table of Contents

Supplemental Materials