��� The canons of orthodoxy selected a peculiar vision of social evolution: the focus of economics on the analysis of the emergence and dominance of markets, described as the institutions constructed by the rule of individual maximization. In that framework, the originally established definition of equilibrium—the intrinsic drive to the changeless state of stasis—was certainly a paradoxical requisite for success. Yet, the concept of equilibrium became a cornerstone of modern economic theory, namely for very practical and concrete reasons: it provided the justification and the rationale for exhaustive quantification and computation, identified as legitimate knowledge responding to the positivist criterion of enlightening science. In that sense, orthodoxy imposed a contradictory scientific program, since change and disequilibrium, and not conservation and equilibrium, are the very nature of social relations. Nothing revealed the contradiction better than the inquiry into fluctuations of economic life. Leon Walras intuitively argued for such a static concept of equilibrium, with his powerful metaphor of the lake: the market permanently tends to stasis, which is permanently disturbed just as the level of the lake is disturbed by the wind, “the level of the water always looking

Swinging All the Way: The Education of Doctor Lucas and Foes

Theories of the business cycle can be classified into two main groups, exogenous and endogenous, according to the way they explain economic fluctuations – either as responses of the economy to factors that are external (exogenous shocks) or as upturns and downturns of the economic system internally generated (by endogenous factors). In endogenous theories, investment is generally a key variable to explain the dynamic status of the economy. This essay examines the role of investment in endogenous theories. Two contrasting views on how changes in investment and profitability push the economy towards expansion or contraction are represented by the insights of Kalecki, Keynes, Matthews and Minsky versus those of Marx and Mitchell. Hyman Minsky claimed that investment ‘calls the tune’ to indicate that investment is the only variable not determined by other variables, so that future profits, investment and the dynamic status of the economy are determined by current investment and investment in the near past. However, this hypothesis does not appear to be supported by available empirical data for 251 quarters of the US economy. Statistical evidence rather supports the hypothesis of causality in the direction of profits determining investment and, in this way, leading the economy towards boom or bust.

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Alvin H. Hansen

Papers

Social Scientist and Social Counselor

Social Scientist and Social Counselor