An Outline of the history of economic thought - Chapter 12 docx

12 A Post-Smithian Revolution? 12.1. At the Threshold of the Millennium 12.1.1. Globalization Coined in 1983 by American journalist Theodore Levitt, and popularized in 1988 by the economist Kinichi Ohmae in his works on the global strategies of multinational companies, the term ‘globalization’ defines a worldwide pro- cess of intensification of the movement of goods, information and produc- tion requirements, especially capital and finance instruments. The process has been favoured by the breakdown of trade barriers in many countries, the spread of neoliberalist ideologies and the adoption of laissez-faire policies by major international economic institutions, as well as by governments and the central banks of leading capitalist countries. Globalization is a complex phenomenon and it is not, therefore, surprising, that it has given rise to a wide range of interpretations and political attitudes. Globalization divides scholars and citizens as much, and probably more, than it unites them. The first dispute concerns the answer to the question: is globalization an emerging novelty or simply magnification of a much older phenomenon, the internationalization of economic activities? Many are inclined to believe that globalization is merely an advanced stage of the development of capitalism. Supporters of this theory base their conviction on the observation that if one observes the world trade of goods and services and the volume of foreign investments during the period from 1880 to the outbreak of the First World War, one sees that the flow of these movements, in relation to production, equals or even exceeds the present-day levels. Thus globalization is simply an intensification of a process which was already underway and which has been favoured by the use of new information and telematic technologies. This interpretation calls to mind the celebrated passage in Manifesto of 1848, in which K. Marx and F. Engels wrote: The bourgeoisie has through its exploitation of the world market given a cosmo- politan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose intro- duction becomes a life and death question for all civilised nations [ ] In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. (p. 476) On the same lines, Norman Angell pointed out in his essay of 1913: ‘This vital interdependence, which crosses frontiers transversally, has taken place mainly over the last forty years [ ] It is the result of the daily use of those devices of civilization which date back to yesterday’ (p. 54). Other scholars, however, insist that globalization is an emerging novelty and have pinpointed three significant phenomena which are specific elements of the present-day situation: (1) the tendency to destructure both production organization methods and the relations between politics and economics; (2) the tendency towards an increase in aggregate wealth which, paradoxically, goes hand-in-hand with an increase in poverty; (3) the growing tension between economic globalization processes and political democracy. The destructuring phenomenon mainly concerns the way the organization of production activity is changing. The problem is that, unlike in the past, production is no longer carried out in the place where production decisions are taken. This trend, known as delocalization of production activity diminishes the responsibility of entrepreneurs towards va rious classes of stakeholders (employees, suppliers, consumer s, shareholders, local commun- ities). The shareholders however are unrestricted by the spatial element, since there seems to be nothing to stop them from buying and selling shares in global markets, whereas the other stakeholders are unable to break away from the restrictions imposed by a given location. The investors’ newly acquired mobility tends to give rise to a wide divergence, unprecedented in economic history, between economic power and social obligations; suffice it to recall that in the past the ‘wealthy’, particularly big industrialists, were unable to avoid taking into account, albeit obtorto collo, the restrictions imposed by the countries in which they operated and by the democratic movements that conditioned their policies. Today capital appears to have acquired a new freedom: no longer does it have to account to the people in the countries where its profits are made. In this sense, economic power has acquired an extra-territorial status. The nation-state’s interest in maintaining its sovereignty over the territory no longer coincides with the interests of companies to move freely in international markets in order to seek better profit opportunities. In other words, the times when it was possible to say, for example, ‘What is good for Ford, is good for America’ have long since gone. In 1968, Richard Cooper—one of the first scholar s to propose an economic theory of interdependence—had speculated that liberalization of international trade and capital flows would make nation-states increasingl y vulnerable and interdependent. This in turn would entail, on the one hand, systematic adjustment of the domestic economies of individual countries and, on the other, a greater commitment on their part in developing con- tractual agreements and international institutions to establish the rules of the 457 a post-smith ian revolution? global game and make sure they were observed. Well, while the extra- ordinary increase in economic interdependence that took place during the period from Bretton Woods (1944) to the mid 1970s was essentially the resul t of political decisions taken by national governments, the globalization process, which got conventionally underway after the Rambouillet (Paris) summit in November 1975, was guided mainly by economic forces set up by private subjects, groups of companies, big lobbies and non-governmental organizations. Precisely because of that interdependence, these subjects were able to react to profit opportunities quite independently of their national authorities. In this sense, globalization enables companies to regain that power of action which had been domesticated through political instruments, at long last making possible what capitalism has always considered to be dogma and utopia: companies, especially big companies, play a key role not only in the organization of the economy but also in the organization of society. Thus globalization modifies the foundations of both the economy and polity, drastically reducing the degrees of freedom of nation-states and giving rise to a ‘sub-politicization’ which was quite unheard of in the past. All the nation-state’s political instruments (taxes, controlling authorities, military security, foreign policy) are tied to a well-defined territory, whereas companies can produce go ods in one country, pay taxes in another and claim assistance and state contributions in yet a third. A serious consequence of this process is the increase in financial instability. Of all the goods that circulate freely on world markets, finance moves with the greatest freedom, speed and virulence. ‘Financi al globalization’ is in fact the co ntemporary world’s most overwhelming phenomenon. Enormous masses of speculative capital move from one market to another in real time in pursuit of capital gains from securities exchanges, financial derivatives and exchange rates. Based on the well-known phenomenon of ‘self-fulfilling prophecies’, these capital movements can give rise to enormous speculative bubbles, making values rise to levels that have no relation to fundamentals. And when the trend reverses, the bubbles bur st, triggering financial down- falls that produce real crises and bring a multitude of countries to their knees. Slumps of this kind were widespread in the 1990s, particularly in south-east Asia and Latin America. International economic organizations such as the International Monetary Fund appear to be able to do little about it. Indeed, on several occasions, the structural adjustments imposed by them on countries asking for aid, have only served to aggravate the problem, thanks to the neoliberalist ideologies that prompted their decisions. The second important aspect of globalization is that it tends to wors en incomes and wealth inequality. Since globalization makes world trade grow, the process increases aggregate wealth, and is therefore a positive sum game—except that the same globalization process exacerbates the contrast between winners and losers. Surveys conducted by the World Bank show that the number of individuals below the absolute poverty level, i.e. who 458 a post-smithian revolution? survive on an income of less than two dollars a day, increased by 228 million between 1987 and 1999. Never theless, the World Bank expects poverty to diminish in the future. On the other hand there is the question of whether absolute poverty is a valid notion for gau ging people’s poverty level and whether it is suitable for understanding the real extent of income inequalities. Perhaps a more appropriate notion of ‘poverty’ is one that relates it to average income. Well, on this basis there has been an even greater increase in poverty. In more gen eral terms, it can be said that inequality in income distribution has increased, and so has the economic vulnerability of a large share of the population, not only in the southern countries of the world, but also in the north. Literature on the subject is divide d. To understand the nature of the problem a distinction must be made between world and international income distribution. The latter considers the differences in the average incomes of the various countries (duly weighted to account for the size of the popula- tion); the former, on the contrary, also takes into account the inequalities in income within the individual countries. Now, in order to reduce worldwide inequality, two conditions must be ensured: the first is that poor and densely populated countries must grow at a faster rate than wealthy countries; the second is that this must occur without an increase in inequality within the countries. Now, the first condition is materializing, at least in a few countries (mainly those, like China, where there is a certain resistance to globaliza- tion), while the second condition is absent in virtually all of them. A third characteristic of globalization is the threat to citizenship’s social rights. The creation of a global market enables firms to move their pro- ductive plants where labour costs are lower. Now the cost of labour is determined not only by the worker’s wage but also by contributions which serve to finance welfare schemes. Basically, these include three main items: the national health service, social security and education. Competition in global markets has resulted in a tendency to lower the levels of social assistance. That globalization can give rise to a worrying slide in welfare benefits is more than just a threat or abstract hypothesis. Thus a new trade- off is taking place between competitively advantageous positions and social security levels. Not only companies, but also States eager to attract invest- ments tend to see the practice of social dumping as a way of securing com- petitive advantages in the global market. But this is a shortsighted attitude. In fact, as J. Stiglitz (2002) argues, democratic policies of income and wealth redistribution could well serve the development process, by ensuring its sustainability in time. This issue is linked to the big question of the relationship between globa- lization and democracy. Globalization drains power from the nation-state (although more from the South of the world than from the great capitalist countries of the North), whose autonomy is heavily impaired by an external constraint. Nation-states are no longer able to escape confrontation with 459 a post-smith ian revolution? the expectations of international capital markets. And political parties are increasingly preoccupied by the requests for credibility from global finance. In fact modest differences in credibility may turn into an unsustainable interest rates spread. Thus the threat to the governments’ ability to exercise their internal sovereignty becomes a threat to democracy itself. Although citizens continue to vote, their actual voting power, on which important public deci- sions rest, tends to decrease with the decline in internal sovereignty. The most important novelty in globalization is what D. Rodrik calls the ‘political trilemma’ of our societies: achievement of full international eco- nomic integration, implementation of democratic policies and maintenance of nation-states are mutually incompatible objectives. Of the three principles, only two can coexist at any one time. This implies that there are several ways of getting round this ‘trilemma’, depending on the importance attributed to the three principles. The course taken by contemporary capitalism, which concentrates mainly on the first and third principle, is not the only one. Other options are available, which means that there is no one best way. Globalization has contributed to the spread of neoliberalist ideologies and in this sense has challenged economic theory. J. Stiglitz (2001, pp. 12–13), commenting on the errors made by the International Monetary Fund during the South-East Asia crisis, observed that We did have adequate theories, we did know how to contrast recessions. It would have been enough to apply exactly what we economists had taught our students in one course after another, in the whole world, for more than half a century. Not- withstanding, the decisions taken were exactly the opposite of what we had preached in out basic courses. All this was for me, as an economist, at least at the beginning, exceedingly difficult to understand. The term ‘neoliberalism’ is used by economists in an ironic, when not in a downright derogatory sense to denote a confused ideology that has taken hold of the minds of businessmen, bankers, journalists, and bureaucrats, down to a vast number of politicians, including left-wingers. It is quite a simple ideology, and is based on two axioms: the market is efficient, regardless of its form; the State is inefficient, regardless of its institutions—a theory that no serious classical or neoclassical liberal would ever have sup- ported. The political implications are equally as simple: the State must be minimal; public enterprises must be privatized; the public budget must tend towards breakeven point; fiscal and mo netary policies must be banned; the central banks must be independent of the citizens’ wills; trade barriers must be abolished; the welfare state must be cancelled out or substantially reduced. None of these political theorems, least of all the axioms on which they are founded, are borne out by scientific research. Today, following the defeat of the monetarist and neomonetarist counter-revolution, economists are rediscovering market failures and State responsibilities. It has finally been realized that markets do not have to be a jungle and that there are no 460 a post-smithian revolution? ‘natural’ laws of the economy. Markets are nothing else but institutions that regulate exchanges. Good institutions are necessary to make them work satisfactorily. Efficient markets are not those that are unregulated; they are those that are well regulated. If, moreover, one asks for some equity, one comes to the conclusion, towards which contemporary economic theory is moving ahead , that State and market, rather than substitute are comple- mentary institutions and that microeconomic and macroeconomic policies are necessary, even before they are desirable. 12.1.2. Modern and post-modern A philos ophical revolution took place in the 1970s which involved different currents of thought in a concentrated attack on neopositivist and empiricist epistemologies. Thinkers hailing from analytical philoso phy, pragmatism, structuralism, hermeneut ics and Marxism contributed in different ways to bring to light the metaphysical, absolutist an d dogmatic premisses of modern ‘scientism’. In this process of unmasking metaphysics, the foundations were laid for a new approach to science in which the pragmatic implications of research, the relativity of consolidated truths, the discursive and rhetorical nature of theoretical systems and the constructive func tion of conceptual models were acknowledged. This gave rise to a general feeling of loss of foundations and certainties. On the one hand, the process caused panic among traditional scientists, on the other, however, it freed creative energies in the younger generations. Thus, from the end of the 1970s, and for a period that is still ongoing, attempts to ‘go beyond’ tradition have multiplied, giving rise to many new approaches that have inflated use of the ‘post’ prefix in the denomination of philosophical approaches: post-analytical, post- structuralist, post-linguistic, post-Marxist and even post-epistemological and post-philosophical. Franc¸ois Lyotard found a word to embrace them all: ‘post-modern’. And he proposed it also with the idea of surpassing the methodological delim- itation of debate. It was finally realized that the ‘post-modern condition’ had overwhelmed not only the philosophy of science, but the entire field of human ex perience too, from artistic production down to ethical and political practices, from existential values to the substantive contents of science. The idea is now consolidated that the post-modern condition has overcome the set of humanistic and rationalistic metaphysical certainties on which the modern world is built. The last remains of western metaphysics is humanism—that set of variegated fables with which men endeavour to give universal sense to their contingent lives, a value of absolute truth to their biased opinions, the strength of objective ethics to their behavioural atti- tudes, a general justification to their particular interests. The post-modern condition goes beyond all this: it is the condition of man who acknowledges his finiteness and makes no drama of it. 461 a post-smith ian revolution? It is easier to understand post-modernism by observing it in contrast to modernism. From an ontological point of view, modernism is based on a belief in the uni versal scope of human reason, whereas the main character- istic of post-modernism is the loss of certainty over the ability of reason to achieve universal objectives. Modernism bows to the idol of a rational human agent, whereas post-modernism places the emphasis on the individual’s peculiar and contingent characteristics and the limits of his rationality. It sh ould nevertheless be borne in mind that the relationship between modern and post-modern is not based on negation alone. It is also a process of accomplishment. Since modernism originates from criticism of the transcendental metaphysics of tradition, its post-modern critics do nothing but bring its premisses to their logical conclusions. The post-modern con- dition is implicit in modernism. The post-modern critical spirit assumes the form of ‘deconstruction’, by which dogmas are broken down through exposure of the linguistic tricks behind which they hide. Post-modern phi- losophers use deconstruction to free the modern spirit of the last remains of metaphysics. Post-modernism is not a philosophical system, in the same way that Marxism and liberalism are. Rather, it is a far-reaching movement of cultural renewal that involves the whole field of human activity. Thus different theoretical systems and even opposing left and right political approaches are formed within it, exactly as occurred with modernism. It should therefore be thought of in the same way as, for example, the Renaissance or the Enlightenment. Let us now see how it works in the field of economics. Modernism dominated the whole history of economic theory during the period when the discipline was an up and coming science, from Smith to Arrow, without excluding many more or less heterodox trains of thought, like Marxism, the old Austrian marginalism, neo-Keynesianism, etc. Although there are pro- found differences in the doctrines of the different schools, they all share the following basic philosophical bearings: (1) A humanist ontology of the social being; in other words, the conviction that economics is a social science based on the behaviour of a rational agent. (2) A substantialist theory of value; that is, a theory which accounts for value as an expression of an eco nomic subject, which explains the appearance of relative prices as an expression of fundamental meanings created by man. These meanings are the human substance that hides behind exchange relations. (3) An equilibrium approach to the study of social structure. Since economic reality is the result of the activity of many subjects, its structure reflects the relations between those subjects. Since human actions are an expression of Reason , relations between men cannot produce chaos. 462 a post-smithian revolution? The idea of a rational social equilibrium expresses the conviction that human activity creates social order. (4) An optimistic metanarrative of the fates of humankind, that is, a theory of history and politics that accounts for the subject’s capacity to mould the world to satisfy a universal purpose conceived as the product of Reason. The two most ambitious modernist theoretical systems in economics are neoclassicism and Marxism, two diametrically opposed currents of thought, which however have in common all those four basic philosophical bearings. Neoclassical metaphysics is founded on the notion of Homo oeconomicus, an anthropological construct that can be reduced to three basic axioms: atomism, egoism, and subjective rationality. Atomism mean s that the eco- nomic agent is an individual whose preferences are formed without the external influence of other individuals’ preferences, cultural models, advertising, etc. Egoism means that individuals are moved by personal aims steered exclusively by their own preferences, and which reduce to the quest for their own welfare. Subjective rationality means that the individual is endowed with perfect and complete knowledge, an unlimited capacity for calculation and the ability to find the best means of achieving his ends. The neoclassical approach is moved by the desire to show that an ideal social order—a general economic equilibrium—can be achieved through the simple unconditioned interactions of a set of social atoms that are both egoistic and rational. These interactions take place in the market, so the ideal social order is market equilibrium. The values of goods that derive from market exchanges reveals a human substance, they express the rational choices of agents and are always determined by the subjective evaluations of consumers, including workers, viewed as leisure time consumers. Marxist meta physics is based on the concept of Homo faber, a collective rather than an individual subject that is formed in productive co-operation. Human reason acts through a ‘general intellect’ which organizes production through capitalist enterpr ises. These are the realm of rationality. On the other hand, in capitalist markets the force of reason is expressed in the form of objective laws of competition that constrain agents to make efficient choices. Through these laws, a division of labour prevails that imposes the rigour of socially necessary labour, i.e. the efficient use of techniques and human beings. The values of goods hide an d express the substance of pro- ductive labour. They do not depend generically on the work they contain, but are instead ‘created’ by labour that is socially necessary to produce goods. As to meta-narratives, the neoclassical one takes the form of welfare economics, an ambitious utopian model which, after a long process of self-critical adjustment, has finally settled in the demonstration of two fundamental theorems. The first establishes that no allocation can be more 463 a post-smith ian revolution? Pareto-efficient than that generated by competitive equilibrium. The com- petitive market is perhaps not the best of all possible worlds, but there is no better alternative to it. The second theorem, on the other hand, establishes that it is always possible, under specified conditions, to achieve an efficient allocation using competitive equilibrium. On this is based a concept of politics according to which competition is the quickest road to efficiency so that the state must act in such a way as to avoid interfering with the market, except in those rare cases where the latter fails. In these cases, by determining prices and transfers that imitate or correct market action, the political authorities use reason to serve the aims of individual economic agents to their best advantage. In this way politics becomes an instrument for rationality, as it helps markets to achieve what individuals consider the best of feasible worlds. Marxist meta-narrative assumes the form of a theory of the laws of movement of the capitalist mode of production. The law of increasing relative poverty explains the tendency of the wage share to diminish in the long term and the life conditions of the oppressed to worsen when compared with those of capitalists. This creates the premisses for arousing the working- class consciousness. The law of the falling rate of profit accounts for the negative effects of accumulation on the profit rate trend, a process that causes a gradual collapse of the propelling thrust of capital. This is accom- panied by the further tendency towards increasingly exacerbated periodic crises. In the end the breakdown of capitalism is so profound that the awakened revolutionary consciousness is able to transform it into a crisis that overcomes capitalism. In the meantime, the law of increasing concen- tration and centralization of capital has widened the size of companies, i.e. the social space within which productive rationality rules, to such an extent that it will not be difficult to pass to a superior mode of production. In such a new world, human subjects wi ll cease to be dominated by the reified reason of capital and will finally assume co nscious control of their conditions of life. This undoubtedly caricatured reconstruction of Marxian meta- narrative aims to emphasize its intrinsically historicist characteristics: it is a strong and optimistic philosophy of history that aspires to account for the final fates of humankind as a process of self-revelation of human reason through class consciousness. All the analytical foundations of the two major modernist theoretical systems have undergone ruthless criticism over the last thirty or forty years. Game theory and the demonstration of the non-uniqueness of general equilibrium have brought to light a disconcerting fact: that rational eco- nomic agents can act in such a way that they are unable to determine their social relations. In addition, the possibility that general equilibrium is not stable shakes the conviction that a market made up of rational atoms is strong enough to build a balanced and efficient social order. For good measure, the prisoner’s dilemma and the free-rider problem lead to the 464 a post-smithian revolution? conclusion that egoism can give rise to social outcomes in which individuals are unable to pursue their own interests to the best advantage. Lastly, Arrow’s impossibility theorem demonstrates that there may be social choice functions which fail to satisfy some requisites of rationality, even in the presence of rational individual rankings. This is a debaˆcle of neoclassical meta-narrative: state action might be unable to help markets to achieve the best of worlds. Even more devastating is the conclusion reached by Sen in his demonstration of the impossibility of a Pareto liberal: in a world of utilit- arian social atoms there may be no room to empower individuals with some of the most elementary human rights. All this is accompanied by the results of empirical an d experimental research, which show that the basic axioms of neoclassical theory are false. Individuals are endowed with bounded rationality and rarely succeed in maximizing anything. Moreover, far from being exogenous and primitive, their preferences are largely influenced by all kinds of externalities and are formed quite endogenously. Finally, insofar as egoism is concerned, it has now been established that individuals are often moved also by altruistic ends, a sense of justice and ethical norms. Homo oeconomicus just does not exist. In the Marxist field, it has been demonstrated that at least three of the four laws of movement, (the falling profit rate, increasing relative poverty and the tendency of periodic crises to worsen), far from being general laws, are in reality conjectures on the historical course which depend on ad hoc and barely realistic hypotheses; in particular, on the hypothesis that capital accumulation and technical progress make the capital–labour ratio increase more than labour productivity. On the theory of value, research which began with the ‘Sraffian revolution’ showed that the theory of labour value is simply wrong and that, on that basis, it might not be possible to assert simultaneously that value is ‘created’ by labour and all profit is ‘created’ by surplus labour. These critiques may not in themselves be disastrous, indeed they could be used to ch ange and improve the analytical apparatuses of the two major systems. The post-modern condition has, however, induced many scientists to interpret them as criticism of the foundations and to use them to bring their metaphysical characteristics to light. Internal criticism thus becomes a process for demolishing theoretical systems by exposing the dogmas on which they are founded. Since the neoclassical and the Marxist systems both lay claim to distant but solid classical and indeed Smithian origins, the last thirty or forty years of the history of economic thought could be referred to as a ‘post-Smithian’ revolution period. It is a revolution that endeavours to go beyond the metaphysics of Homo oeconomicus and Homo faber; a revolution against the absolute truths of modern economic science, which, nevertheless, aims to exalt and free its critical spirit, that critical spirit which was already present in Smith’s institutionalist soul and which his heirs have tried to suffocate. 465 a post-smith ian revolution? [...]... capitalists Each of these wishes to increase the size of its own slice of the cake But the rules of the game prescribe that neither can take the whole cake Neither of the two slices can increase indefinitely at the expense of the other In the long run they will be constant; in the short run they oscillate The mechanism ensuring the oscillation is made up by the negative effects that an increase in the wage... Development and Latin America (1971) In 1977 Hirschman published The Passions and the Interests, an important book on the history of ideas which reconstructed the long sequence of thought which, initiated by Machiavelli, led to the seventeenth-century doctrine of the predominance of interests over passions In the Theory of Moral Sentiments, Smith had placed the non -economic impulses at the service of economic. .. failures’ rather than of comparison of different institutions 12. 3.2 Contractarian neo-institutionalism The foundation of the Journal of Law and Economics in 1958 sanctioned the birth of a fruitful association between the faculty of law and the faculty of economics at the University of Chicago It was the beginning of American neoinstitutionalism The new stream of thought was stimulated by a simple observation:... a ‘mechanical analogy’ and of having confined economic theory to the sphere of applicability of rational mechanics The proposal advanced was that of a new alliance between economic activity and the natural world, a proposal which in the following years was to become his ‘bioeconomic programme’ The keystone of this ambitious programme was to be found in the entropy law, the most economic of the physical... post-smithian revolution? This revolution tends to assume two forms On the one hand, and apparently paradoxically, the languages and analytical techniques of modern orthodox economics, rather than its convictions, have spread and consolidated This is the worst aspect of the post-Smithian revolution On the other, there has been a hitherto unseen proliferation of heterodox approaches, in a process of. .. of Schumpeter The first phase of his economic work focused on consumer theory, input–output analysis, and the theory of production In this phase he published the fundamental articles The Pure Theory of Consumer Behaviour’ (1936) and ‘Choice, Expectations and Measurability’ (1954) The first article dealt with the problem of integrability in the theory of demand and produced a devastating result for the. .. modification of the rationality postulate, it adds institutions as a critical constraint and analyzes the role of transaction costs [ ] It extends economic theory by incorporating [agents’] ideas and ideologies into the analysis, modelling the political process as a critical factor in the performance of economies, as the source of the diverse performance of economies, and as the explanation for the ‘inefficient’... safeguard man’s social nature Legislation directed at protecting the environment and regulating use of the earth; the Central Bank and its management of finance markets; antitrust regulations and demand-management policies, implemented to stabilize the macro economy; consumer protection agencies and associations; authorities dealing with the protection and care of children and the elderly; trade unions and... article, on the basis of an innovative application of the theory of oscillations, Georgescu produced a fundamental result for the study of regime changes The second phase of Georgescu’s scientific work began with the famous 1966 methodological essay, Analytical Economics: Issues and Problems, a book that contains a pitiless criticism of ‘standard economics’ The main accusation was of having reduced the economic. .. contains the best of his work in the field of multi-sector linear modelling Here we shall mention the most important of these articles In the field of the business cycle, it is worth mentioning The Non-Linear Accelerator and the Persistence of the Business Cycle’ (1951), in which he 474 a post-smithian revolution? tried to solve a fundamental problem of cycle theories based on the interaction between the . and capitalists. Each of these wishes to increase the size of its own slice of the cake. But the rules of the game prescribe that neither can take the whole cake. Neither of the two slices can. criticism of ‘standard economic s’. The main accusation was of having reduced the economic process to a ‘mechanical analogy’ and of having confined economic theory to the sphere of applicability of rational. for value as an expression of an eco nomic subject, which explains the appearance of relative prices as an expression of fundamental meanings created by man. These meanings are the human substance that