Disequilibrium and Instability (Not Equilibrium) as the Normal State of the Industrial Economies: A Methodological Standpoint on Structural Economic Dynamics

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Wirkierman, Ariel Luis. 2022. Disequilibrium and Instability (Not Equilibrium) as the Normal State of the Industrial Economies: A Methodological Standpoint on Structural Economic Dynamics. In: Enrico Bellino and Sebastiano Nerozzi, eds. Pasinetti and the Classical Keynesians: Nine Methodological Issues. Cambridge: Cambridge University Press, pp. 187-213. ISBN 9781108923309 [Book Section]

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Official URL: https://www.cambridge.org/core/books/abs/pasinetti...

Abstract or Description

Equilibrium is an organising principle of economic thinking subject to incompatible interpretations. The idea of a Keynesian equilibrium as a position of rest with involuntary unemployment contrasts with Pasinetti's notion of an equilibrium situation, that is, an unstable position with full employment. In the former, an equilibrium state cannot be separated from the mechanisms that may (or may not) lead to it, whereas in the latter, the explicit separation between both layers is crucial.

This chapter explores how Pasinetti's methodological standpoint, formulation of the principle of effective demand and conceptualisation of equilibrium, cumulatively build up into a scheme of structural dynamics. It is argued that compositional changes in the structure of demand and the uneven pace of productivity increases render equilibrium situations impossible to maintain through time, especially as regards (full) employment. Therefore, rather than seeking explanations as to why the economy does not return to its equilibrium path, it proves fruitful to specify and empirically implement computable norms to quantify how far (or close) actual economies are from them, providing a compass for policy.

Item Type:

Book Section

Identification Number (DOI):

https://doi.org/10.1017/9781108923309.009

Additional Information:

This material has been published in revised form in Pasinetti and the Classical Keynesians: Nine Methodological Issues edited by Enrico Bellino, Sebastiano Nerozzi [https://doi.org/10.1017/9781108923309.009]. This version is free to view and download for private research and study only. Not for re-distribution or re-use. © Cambridge University Press.

Keywords:

economic methodology, principle of effective demand, dynamic analysis, equilibrium growth, structural dynamics of employment

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