Description : 

We would like to suggest that historical evolution of macroeconomics results from the works of different communities, each with its own vision and practice of doing research. Schumpeter observed in his 1954 History of Economic Analysis that worldview lies at the core of any process of scientific process. His focus was on vision of authors while the present course will refer to visions shared by a group.
The canons of such community may be explicit, but more often are tacit. Besides, such communities are not isolated and impermeable but may rather overlap.
 The purpose of this min-course is to provide a new picture of the historical development of macroeconomics by focusing on communities who, by addressing problems of (in)-stability, came to develop specific “visions”. We think such a work may help shedding new light on the wide variety of macroeconomic approaches.

The lecture focuses as well on financialization as this notion lies at the heart of most of applied non-standard approaches in economics. During the last decades, the rise of finance is analyzed here through different points of view: organizational transformations of firms (relations between shareholders and managers, employment relations and inter-firm relations), macro-dynamics (wage-profit allocation, trends and economic policies), transformations of finance itself (rise of instability, securitization, derivatives) and evolution of the role of households in finance (financialization of daily life, anchor for monetary stability). Both facts on and theories of financialization, including critical ones, are presented.
Programme : 

     1.Stagnation and local (in)-stability
Economists from the Warsaw Institute interacted in the early 1930s with three kinds of groups. The first was a socialist community; the second was a group of high-level academia and monetary economists; the third was a group of econometricians. In connection with these three groups, each with its own political and intellectual background, they came to develop a new vision of (in)-stability which may fairly be summarized as the idea that economies are stagnant but subject to local instability. Warsaw (1929-36) M. Kalecki, O. Lange, M. Breit, E. Lipinski

     2. Growth and local instability
In accordance with the ‘principle of instability’ developed by Harrod, economists from Cambridge explored in the late 1930s the vision of growing economies subject to repetitive crises. Their works mostly resorted on specific adjustments of natural growth, warranted growth and actual growth in relation to a particular treatment of nonlinearities. Along theses lines, self-sustained growth was assumed to come with local instability because forces that make the warranted rate move towards the natural rate were assumed to drag along with it a fall in the actual rate. Cambridge, UK.  (1934-1939) R. Harrod, N. Kaldor

     3. Global instability and local stability
In the early 1940s, European émigrés addressed the Corridor « Hypothesis » subsequently taken up by Leijonhuvfud in the late 1960s and James Tobin in the 1970s. Within the Walrasian framework and in reference to Keynes’s General Theory as well as to Fisher, they outlined the vision that the resilience of the economy depends on the extent of its displacement from a (hypothetically) perfectly coordinated state. In particular, the ability of “market forces” to bring the economy back towards “equilibrium” without the aid of policy interventions was assumed to be significant only inside the corridor, but very much weaker, if not entirely absent, outside of it. Cowles Commission (1941-1945) and Cowles Foundations (1970’s), O. Lange, J. Marshak, J. Mosak, J. Tobin

     4. Growth and full employment policies
In the first mid-1960s, MIT economists suggest a new way to deal with instability by addressing growth issues in absence of short-run problems.  It is on this basis that neoclassical synthesis principles that has guided the Council of Economic Advisers (CEA) (1961-1965) was built. In particular, the neoclassical growth model was considered effective, provided that proper fiscal and monetary policies were implemented and instability problems were solved. As such, the Keynesian and neoclassical approaches were made compatible without assuming economies were stable and reach automatically their long-run paths. MIT (mid 1950s and early 1960) R. Solow, P. Samuelson, A. Sen

     5. Instability and indetermination
The overlapping generations set up became established in the early 1980s as one of the workhorse models for macroeconomics. Initially came the discovery by Michael Woodford (1984) and others that a well posed real competitive overlapping generations model had the capacity to generate a continuum of equilibria, all converging asymptotically to the same steady state, a result not to be found in standard Walrasian formulation. That overlapping generations might have a continuum of equilibria was well known since Samuelson (1958). What was new for macroeconomists is that indeterminacy, rather than being a problem, was actually a powerful way to address macroeconomic instability issues a real asset from an analytical point of view. Another line of research was initiated by Jean-Michel Grandmont (1983, 1985) who used overlapping generations model to generate a large variety of fluctuating trajectories. Following from these works, a number of authors argued that similar results could occur in models with infinitely lived agents if the aggregate economy is characterized by the existence of various kinds of market imperfections. Woodford’s stance was that once these imperfections are introduced, anything important for business cycle modeling was lost and one could hence stop considering overlapping generations models. Cepremap, MIT (early 1980s) J. M. Grandmont, R. Guesnerie, Woodford.

     6. Old and new analysis of financialization
With authors like Marx, Hilferding and Lenin, finance as such has been considered for the first time as playing a central role in the accumulation process. But the theme has been overlooked later on during the 20th century, until Krippner (2007), Epstein (2005), Duménil & Lévy (2004) and others from the regulation and the post-keynesian schools developed the idea that advanced capitalist countries were experiencing a new era of financialization since the beginning of the 1980’s. Marx, Hilferding, Lenin Krippner (2007), Epstein (2005), Duménil & Lévy (2004), van der Zwan (2014)

     7. Financialization of firms and employment relations
This chapter presents some classical research on corporate governance, shareholder value and the transformations of firms. The notion of social logics of finance is also developed. Lazonick & O’Sullivan (2000), Bryan & Rafferty (2006, 2015)

     8. Finance and macroeconomic instability
Neoliberalism, financial deregulation, income distribution, endogenous money, role of banks and financial system, formalization of path-dependency, long-run dynamics, stock flow consistent models, securitization, derivatives. Duménil & Lévy (2011), Spencer (2013), Passarella (2014), Sawyer (2014), Fine (2016)
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