A few counter-factual hypotheses on the current economic crisis

Luigi L. Pasinetti

Cambridge Journal of Economics, 2012, vol. 36, issue 6, 1433-1453

Abstract: The economic and financial problems of the present devastating crisis are terribly practical. Sraffa's little book is highly theoretical. To relate the two we must avoid stopping at Keynes, and include the whole group of economists around him in Cambridge, resuming the discussions that have been pushed into oblivion by the mainstream. The capital theory controversy was not the only one. Here, more relevant is the controversy on growth, income distribution, savings and profits between Samuelson--Modigliani and Kaldor--Pasinetti. As a result, a theorem, associated with Modigliani--Miller, was brought to fame and hailed as 'the core of modern corporate finance'. Its surprisingly wide acceptance is here harshly criticised and indicted of major responsibility for the present crisis. Inevitably, this is argued through counter-factual hypotheses. Yet, even with less sophisticated analytical tools, a framework does exist, much nearer to common sense, implying the needed flexibility and openness of mind for the major restructuring of financial institutions, which today so clearly emerges as the major task to undertake. Copyright , Oxford University Press.

Date: 2012
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