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Thread: Any hope for classical.....?

  1. #1 Any hope for classical.....? 
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    Is there any hope for classical economic theory? Can any go on believing economies can just regenerate themselves after a major blow?

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  3. #2  
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    Does Classical economic theory mean to you Ricardo, Mill, Marx, Smith, etc? All of them are actually talking about falling rate of profit and the forthcoming inevitable crisis (in the long-long-long run, excluding Marx who suggest these crises as a cyclical phenomenon). There's no clear way through which the economy will surpass this kind of crisis according to them (excluding Marx who suggests capital depreciation). If the current crisis is not because of the falling rate of profit, then indeed the economies will regenerate themselves (in Marxian theory, it will regenerate itself even if the rate of profit is low). Almost no one will oppose that. The real debate is, at what cost and how long will it take. (And here classical theory can provide us with ingenious and useful insights)

    If by saying classical economic theory you mean, neoclassical/marginalist theory (Walras, Jevons, Marshall, Hicks, etc) then according to them, there is not even the possibility of a major blow.
    This is exactly what Walras' law suggests:

    If there's just one market in equilibrium, then all markets must be in equilibrium. Therefore, no regenerating mechanism is even required since there's not even the possibility of a disequilibrium (and if there's an exogenous shock then it will almost instantly come to a new equilibrium).

    As far as I understand, no there's no hope for this kind of theories (I'm referring to the neoclassical one). Economics is a science. You can not just pretend that everything will be (quickly) auto corrected. I cannot imagine a meteorologist who suggests that there will be no winter, or that it will last just for a few moments. Winters and cold is almost permanent in some regions and it will never become a sunny tropical environment. Yet, there are economists who suggest exactly that prospect.

    There's a possibility (better, a tendency) for disequilibrium and imbalances and after 4 (if not more) global crises (since the existence of "free" markets, or capitalism) and numerous local crises we should realize exactly that. Economies are not tending to regenerate themselves satisfactory and institutional intervention is highly required in order to painlessness equilibrate again. Even so, someone may argue that there are serious physical, social, environmental and institutional barriers in this kind of economies.

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  4. #3  
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    Great post by Achilleas. Classical economics is screwed, as well as mainstream Chicago-school economics.
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