Annals of the Society for the History of Economic Thought

Throughout the eighteenth century, as many economic historians have remarked, the financial markets in Northwestern Europe became integrated. Many studies have been conducted on the monetary theory and policy of that time. However, few studies have been done on monetary thought in this particular historical context. The purpose of this article is to present an alternative point of view from which to study the monetary thought of that age. First, based on recent studies, we surveyed the time period of financial crisis spanning from the Mississippi Bubble to the suspension of the Bank of England in order to ascertain the financial circumstances of that time. Second, we also surveyed studies on monetary thought of the contemporary theorists related to movement of capital and circulation of paper money. Finally, we reassert the importance of such a point of view in the historical context.

View full abstract

The theoretically effective range of K. Marx's credit theory is examined in this paper by comparing periodic financial crises in the 19th century to contemporary financial crisis. In his analysis of the 19th century financial crises, Marx not only criticized the existing monetary theory but assimilated its effectiveness, interpreting the financial crisis as a contradiction between the real economy and the monetary economy.
The 20th century exhibits several new aspects of financial crisis such as the expansion and implosion of the stock market during the 1920s and the 1930s, frequent occurrences of financial crisis in the post-war U. S. economy, and the international financial crisis during the 1990s. The new aspects of the contemporary financial system, such as the development of securities market, adoption of a managed currency system, etc., emphasize the requirement for a new theory of financial crisis.
However, given that Marx's credit theory, which declared the internal relationship between accumulation of real capital and the movement of financial transactions, is an effective base for analysis, this paper concludes that the contemporary financial crisis is within the range of effectiveness of Marx's credit theory.

View full abstract

In the General Theory, Keynes criticized the classical idea of the automatic adjustment of markets towards full employment, and emphasized the role of the demand side of the market in ensuring the possibility of an underemployment equilibrium. The roots of this criticism can be found already in A Tract on Monetary Reform and A Treatise on Money, though in these works Keynes still maintained the classical equilibrium methodology. After the publication of the Treatise, Keynes deepened the study of the role of money in transactions, and abandoned the classical idea concerning the relationship between savings and investment. In fact, he conceived the idea that savings are generated by investment. According to this new view he espoused, which emphasized the creditdriven nature of the economy, the rate of interest must be equal not to the natural rate of interest but to the monetary one.
Professor Izumi Hishiyama proposed the interpretation that Keynes's new idea concerning the determination of the rate of interest could be traced back to the controversy between Hayek and Sraffa. Taking into account Hishiyama's view, in this paper we show that, in his 1937 papers, Keynes implied that the banking system can have only an indirect effect on the level of the long-term interest rate that governs investment, although it can affect, temporarily, the level of industrial activity through the endogenous creation of money and the control of the short-term interest rate.

View full abstract

Show abstractHide abstract

Much criticism has been levied against Neo-Classical Economics (NCE). Currently, even the followers of NCE have declared the need for alternative economics.
This paper examines the philosophical origins of NCE. In the process of making this examination, we establish a fundamental critique against NCE, which has survived through the ‘evolutionary’ process.
This paper points out the philosophical origins of NCE. First, the theoretical aspect of NCE (that is, methodological individualism), originated in Descartes. ‘Homo Economicus’ (rational economic man) and the optimum principle are derived from Descartes. Notably, the logic of Descartes ultimately depends on the proof of the existence of God. This appropriation is scandalous, in that it throws into question the very rationality of Descartes' and Neo-Classical Economics' foundations. Second, the empirical aspect (i. e., falsificationism) originated in Popper. This appropriation gave the economics a scientific aspect, insist the followers of NCE. Although Kuhn's ‘Scientific Revolutions Theory’ and ‘Paradigm Theory’ challenged falsificationism, Popper's pupil Lakatos modified Popper's theory and advocated ‘Methodology of Scientific Research Programmes’ (MSRP). In turn, this modification made falsificationism seem innocuous.
This paper ends with suggestions for alternative economics, referenced with irony from Descartes and Popper: Popper's original bold trials and errors (viz., conjectures and refutations), and Descartes' ‘temporary morality’.

View full abstract

Download PDF (1483K)

Register with J-STAGE for free!