Abstract
This chapter examines the link between the instability features of a profit-driven economy and the structural changes inherent to that type of economy. Moving from consideration of the profit motive as search and exploitation of price (or cost) differentials, the chapter considers the structural dynamic of this type of economy as a process driven by the generation of differentials that attract investment in real or financial activities. The chapter calls attention to the dual character of that dynamic depending on whether it takes place through the “horizontal” reshuffling of activities in the real economy or the “vertical” shifting of liquid funds between real and financial activities. Constraints and opportunities for policy-making arise from those dynamics. Combining attention to horizontal and vertical changes in economic structure, the chapter highlights the dual role of finance, which may alternatively trigger “patient” long-term investment in the real sphere or generate instability under conditions of increased financialization and market volatility. This open-endedness of structural dynamics has important implications for economic policy, which can only overcome the trade-off between incentive to invest and economic expansion by triggering structural changes along a path compatible with the investment of liquid funds in the real economy.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Luigi Pasinetti examined the structural changes required on a dynamic path triggered by technical progress and changes in consumer actions under conditions of full employment and full capacity utilization. His analysis is carried out considering the fundamental structural relationships that determine the “natural” dynamic path of the economy independently of its institutional characteristics (Pasinetti, 1981, 1993, 2007; see also Scazzieri, 2012). Alberto Quadrio Curzio investigated the structural transformation path of an economic system identified by access to a given set of production techniques if that system is to grow at its maximum feasible rate under constraints generated by natural or technological scarcities (Quadrio Curzio, 1975, 1986, 1996; see also Scazzieri et al., 2015).
- 2.
- 3.
Hicks denotes as “double equilibrium path” a path associated with “both saving-investment equilibrium and full employment” (Hicks 1977, p. 11, Hicks’s emphasis).
- 4.
This point of view suggests that greater flexibility of manufacturing structures (Bianchi & Labory, 2019) and financial innovation leading to greater liquidity of financial investment may be two sides of the same process driven by the profit motive under conditions of increased volatility.
- 5.
Charles Babbage added to Smith’s advantages (increasing dexterity, saving of time, and greater likelihood of invention) a fourth advantage consisting in the possibility for the “master manufacturer” to “purchase exactly that precise quantity [of the different degrees of skill or of force] which is necessary for each process” (Babbage, 1835, p. 175; see also Scazzieri, 1993).
- 6.
This “narrow path” is emphasized in Shaikh (2019). See also Shaikh (2016) and Shaikh’s contribution to this volume. Shaikh develops Richard Goodwin’s growth cycle model (Goodwin, 1967), which assumes that only capitalists save and that all savings are invested, so that the rate of capital accumulation equals the rate of profits. This model calls attention to the relationship between the inducement to invest as signaled by the rate of profits and the rate of change of the wage share, defined as “the rate of change of real wages minus the rate of change of productivity” (Shaikh, 2016, p. 642). In this analytical framework, demand stimulus policy may raise real wages above the rate of change of productivity thus raising the wage share to the detriment of the profit share and of the rate of profits with a potentially detrimental effect on the overall level of activity, since “it takes a particular wage share to give the savings rate which will align warranted growth to the natural rate” (ibid., p. 647). The generalization of the model to include workers’ savings out of wages (Pasinetti, 1962) would not significantly modify the above result since the rate of profits π compatible with warranted growth at the natural rate n would only reflect the capitalists’ propensity to save sc, that is, π = n ∕ sc.
- 7.
An interesting case is that of the so-called family offices, which are essentially unregulated and managed around $5.9tn in 2019 (Martin et al., 2021, p. 6).
References
Aftalion, A. (1908–1909). La réalité des surproduction générales: Essai d’une théorie des crises générales et périodiques. Revue d’économie politique, 32(1908), 696–706; 23(1909), 81–117; 201–229; 241–259.
Aftalion, A. (1913). Les crises périodiques de surproduction. Rivière.
Aftalion, A. (1927). The theory of economic cycles based on the capitalistic technique of production. The Review of Economics and Statistics, 9(4), 165–170.
Amsden, A. (1997). Bringing production back in: Understanding Government’s role in late industrialization. World Development, 25(4), 469–480.
Babbage, C. (1835). On the economy of machinery and manufactures (2nd ed.). C. Knight.
Baranzini, M. (1991). A theory of wealth distribution and accumulation. Clarendon Press.
Baranzini, M., & Scazzieri, R. (1997). Profit and rent in a model of capital accumulation and structural dynamics. In P. Arestis, G. Palma, & M. Sawyer (Eds.), Capital controversy, post-Keynesian economics and the history of economics. Essays in honour of Geoff Harcourt (Vol. I, pp. 121–132). Routledge.
Baumol, W. J. (2002). The free-market innovation machine. Analyzing the growth miracle of capitalism. Princeton University Press.
Bianchi, P., & Labory, S. (2019). Manufacturing regimes and transitional paths: Lessons for industrial policy. Structural Change and Economic Dynamics, 48(March), 24–31.
Bouniatian, M. (1908). Studien zur Theorie und Geschichte der Wirtschaftskrisen. Reinhardt.
Bouniatian, M. (1922). Les crises économiques. Rivière.
Bouniatian, M. (1928). The theory of economic cycles based on the tendency toward excessive capitalization. The Review of Economics and Statistics, 10(2), 67–79.
Braudel, F. (1977). Afterthoughts on material civilization and capitalism. Johns Hopkins University Press.
Cardinale, I. (2018). A bridge over troubled water: A structural political economy of vertical integration. Structural Change and Economic Dynamics, 46, 172–179.
Cardinale, I., & Scazzieri, R. (2017). Beyond “austerity vs. expansion”: Elements for a structural theory of liquidity policy. Revue d’économie industrielle, 160(4), 107–136.
Cardinale, I., & Scazzieri, R. (2019). Explaining structural change: Actions and transformations. Structural Change and Economic Dynamics, 51, 393–404.
Cardinale, I., & Scazzieri, R. (2020). Interdipendenze produttive, interessi e condizioni sistemiche: elementi per un’economia politica delle strutture industriali. L’Industria. Review of Industrial Economics and Policy, 41(1), 21–50.
Deane, P. (1980). The first industrial revolution (2nd ed.). Cambridge University Press.
Deane, P., & Cole, W. A. (1967). British economic growth, 1688–1959. Trends and structure (2nd ed.). Cambridge University Press.
Goodwin, R. M. (1967). A growth cycle. In C. H. Feinstein (Ed.), Socialism, capitalism and economic growth (pp. 54–58). Cambridge University Press.
Hagemann, H. (1998). General glut controversy. In H. Hagemann & N. Salvadori (Eds.), The Elgar companion to classical economics (pp. 320–324). Edward Elgar.
Hicks, J. R. (1969). A theory of economic history. Clarendon Press.
Hicks, J.R. ([1973] 1977). The mainspring of economic growth. In J. Hicks, Economic perspectives. Further essays on money and growth (pp. 1–19). Clarendon Press.
Janeway, W. H. (2012). Doing capitalism in the innovation economy. Cambridge University Press.
Keynes, J.M. ([1936] 1970). The general theory of employment, interest and money. Macmillan and St. Martin’s Press.
Kindleberger, C. P. (1978). Manias, panics and crashes. Macmillan.
Lowe, A. (1976). The path of economic growth. Cambridge University Press.
Martin, K., Wigglesworth, R., & Fletcher, L. (2021). “They can do what they want”: Archegos and the $6tn world of the family office. Financial Times Weekend, 2(April), 6.
Masci, G. (1934). Alcuni aspetti odierni dell’organizzazione e delle trasformazioni industriali. In G. Masci (Ed.), Organizzazione industriale (pp. 929–958). UTET.
Neal, L. (2010). The rise of financial capitalism. International capital markets in the age of reason. Cambridge University Press.
Pasinetti, L. L. (1962). Rate of profit and income distribution in relation to the rate of economic growth. Review of Economic Studies, 29(4), 267–279.
Pasinetti, L. L. (1965). A new theoretical approach to the problems of economic growth. In Econometric approach to development planning (pp. 571–687). North Holland.
Pasinetti, L. L. (1981). Structural change and economics growth. A theoretical essay on the dynamics of the wealth of nations. Cambridge University Press.
Pasinetti, L. L. (1993). Structural economic dynamics. A theory of the economic consequences of human learning. Cambridge University Press.
Pasinetti, L. L. (2007). Keynes and the Cambridge Keynesians: A “revolution in economics” to be accomplished. Cambridge University Press.
Quadrio Curzio, A. (1975). Accumulazione del capitale e rendita. Il Mulino.
Quadrio Curzio, A. (1986). Technological scarcity: An essay on production and structural change. In M. Baranzini & R. Scazzieri (Eds.), Foundations of economics. Structures of inquiry and economic theory (pp. 311–338). Basil Blackwell.
Quadrio-Curzio, A. (1996). Production and efficiency with global technologies. In M. Landesmann & R. Scazzieri (Eds.), Production and economic dynamics (pp. 105–139). Cambridge University Press.
Robertson, D. H. (1915). A study of industrial fluctuation: An enquiry into the character and causes of the so-called cyclical movements of trade. P.S. King.
Sainsbury, D. (2020). Windows of opportunity. How nations create wealth. Profile Books.
Scazzieri, R. (1993). A theory of production. Tasks, processes, and technical practices. Clarendon Press.
Scazzieri, R. (2012). The concept of “natural economic system”: A tool for structural analysis and an instrument for policy design. In R. Arena & P. L. Porta (Eds.), Structural dynamics and economic growth (pp. 218–240). Cambridge University Press.
Scazzieri, R. (2018). Innovation and production dynamics: The producibility-scarcity paradox. Balzan Papers, 1, 201–207.
Scazzieri, R., Baranzini, M., & Rotondi, C. (2015). Resources, scarcities and rents: Technological interdependence and the dynamics of socio-economic structures. In M. Baranzini, C. Rotondi, & R. Scazzieri (Eds.), Resources, production, and structural dynamics (pp. 427–484). Cambridge University Press.
Schumpeter, J. A. (1928). The instability of capitalism. Economic Journal, 38(151), 361–386.
Schumpeter, J.A. ([1934] 1974). The theory of economic development. An inquiry into profits, capital, credit, interest, and the business cycle. Oxford University Press.
Sen, S. (2007a). Globalisation and development. National Book Trust.
Sen, S. (2007b). Global finance. On the move to stock market capitalism. In S. Sen (Ed.), Dominant finance and stagnant economies (pp. 113–128). Oxford University Press.
Sen, S., & Marcuzzo, M. C. (2018). Introduction. In S. Sen & M. C. Marcuzzo (Eds.), The changing face of imperialism. Colonialism to contemporary capitalism (pp. 1–11). Routledge.
Shaikh, A. (2016). Capitalism. Competition, conflict, crises. Oxford University Press.
Shaikh, A. (2019). Profitability, stimulus policy, and finance. In this volume.
Sismondi, J.C.L., Simonde de (1837–1838). Études sur l’économie politique. Treuttel et Wurtz.
Spiethoff, A. (1903). Die Krisentheorie von M.I. Tugan-Baranowsky und L. Pohle. Jahrbuch für Gesetzgebung, Verwaltung and Volkswirtschaft, 27(2), 331–360.
Tugan Baranovsky, M. I. (1894). Promyshlennye Krizisy v sovremennoj Anglii. St. I. N. Skorochodova.
Acknowledgements
I am grateful to Sunanda Sen for enlightening conversations on the themes of this essay and in particular on the relationship between uncertainty and the removal of liquidity from the production sphere. I am also grateful to Maria Cristina Marcuzzo and Annalisa Rosselli for their comments and suggestions on a previous draft of this chapter. The usual caveat applies.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2022 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Scazzieri, R. (2022). Instability and Structural Dynamics in the Macroeconomy: A Policy Framework. In: Arnon, A., Marcuzzo, M.C., Rosselli, A. (eds) Financial Markets in Perspective. Springer Studies in the History of Economic Thought. Springer, Cham. https://doi.org/10.1007/978-3-030-86753-9_14
Download citation
DOI: https://doi.org/10.1007/978-3-030-86753-9_14
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-86752-2
Online ISBN: 978-3-030-86753-9
eBook Packages: Economics and FinanceEconomics and Finance (R0)