Fluctuations and Growth: Keynes, Schumpeter, Marx and the Structural Instability of Capitalism

Abstract

Keynes, Schumpeter and Marx contributed, perhaps more than anybody else, to the understanding of the inherent instability of a monetary economy and of the connected essential relation between cycles and growth. The analysis of economic cycles cannot be severed from the analysis of growth, because cycles and growth crucially interact in a structurally unstable economic structure, which is typical of any monetary economy and especially of developed capitalism. Each of our three authors reacted, though in different ways, to the traditional mainstream view according to which we may distinguish two sets of economic forces, respectively determining cycles and growth. The first set of forces should, in this view, explain disequilibrium cyclical movements around equilibrium trends whose dynamics is explained by the second set of forces. Disequilibrium dynamics is conceived as not affecting equilibrium trends so that we may study separately cycles and growth. The relation between the two sets of forces is then often rationalized through the distinction between short-period and long-period where short-period precisely excludes growth from the scope of analysis, while long-period excludes business cycles and all other disequilibrium movements. We will try to show that the relation between short-period and long-period as well as between cycle and growth has to be considered in a completely different perspective in the theory of our three authors. The structural instability of a monetary economy implies an unavoidable feed-back between short-period and long-period as well as between cycle and growth.