Is Capitalism Inherently Unstable? (3)

By | |

Flattr this!

One of the many schisms in eco­nom­ics is between econ­o­mists – new and old – who believe that prices are set by sup­ply and demand, and econ­o­mists – also new and old – who believe they are set by a mark-up on the cost of pro­duc­tion.

The for­mer argu­ment is the over­whelm­ing favourite today, but two cen­turies ago, it was the minor­i­ty view. Though mod­ern ‘neo­clas­si­cal’ econ­o­mists are wont to claim Adam Smith as one of their own, he dis­owned their pre­ferred ‘sup­ply and demand’ pric­ing mod­el to argue that prod­ucts exchange at prices that are relat­ed to their rel­a­tive costs of pro­duc­tion.
Read more: http://www.businessspectator.com.au/article/2013/5/20/economy/seductive-super-models-supply-and-demand#ixzz2UW9uTCoF

Bookmark the permalink.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.