MODERN MACROECONOMICS AND DYNAMIC ECONOMY THEORY (REVIEW)

Abstract

REVIEWof the monograph by Józef Chmiel entitled:MODERN MACROECONOMICS AND DYNAMIC ECONOMY THEORY.Warsaw PWN 2017, 503 pagesEconomics as a science on management attempts to clarify complex correlations and mechanisms related to modern economic systems. Thus the methodology analysis in economics studies seeks to identify, on a current basis, processes that involve statistical, mathematical, historiosophical, comparative or descriptive methods. Stiglitz does not have to prove any longer to be an efficient toolmaker; he can make syntheses, draw more general conclusions and ask questions about the most essential issues for the world. On the other hand, the general theory by J. M. Keynes is the best example of a work in which mathematics as such is non-existent, however the language itself is exceptionally mathematical, complex and very accurate. Hence there appear numerous questions in the academic discourse about the role of macroeconomics and microeconomics in modern interpretations of classical economics. Should one, while analysing the microeconomics, consider its methodology-related principles in the macroeconomic context. Thus, it is worth to make a certain generalisation and agree with the view by M. Belka stating that the economics environment sometimes tends to depreciate the importance of history for economics. There exist two poles of thoughts; on one hand there is the Friedman achievement, on the other hand one can find a moral capitalism. This bi-pole area of intellectual discussions is supplemented by a new paradigm of the market economy, encompassing the social economics or binary economics by Louis Kelso.It is of a great importance that Józef Chmiel decided to make his valuable contribution into the modern discussion on the importance of economics, microeconomics and macroeconomics. His contribution is of even a greater importance as a lack of balance between the said areas of economics, or even further a lack of connection between them did not result in bridging a gap between the microeconomics and microeconomics theories, which was drawn into attention by M. Levinson, N. G. Mankiw, or A. M. Okun.Another element of the discussion was to find a way to break a deadlock involving the main-stream economics. There appeared questions as to achievements of which economics schools should be classified as orthodox economics and which as heterodox economics, and also about the role played by the neoclassical economics school. The Author subsequently pondered on what frameworks of general balance should be preferred (e.g. Janina Godłów-Łęgiedź), on the basis of interpretation of the following notions: economists school, development trends, orthodoxy and heterodoxy or main stream. And maybe, as it was stated by D. Calander one should direct the discussion into interpreting the main stream of economics as a dynamic and complex system, instead of regarding it as a system reduced only to the neoclassical orthodoxy. (see D. Calander, 2000, Współczesne teorie ekonomiczne).The Author of the reviewed paper raised, in the general sense, some interesting research questions (p. 13). However, if it is true that the neoclassicism has dominated the main-stream economics, then all reservations expressed about the main-stream economics will mainly relate to the neo-classical economics. While searching for arguments, the Author rightly cited the achievements by: Uskali Mäki, Ronald Coase, Wassilg Leontief, Adam Noga, Valaras, Pareto, Arrow. The main charge against the main-stream economics is the lack of realism. However, another accusation is based on the formalism, ignoring of the social and institutional conditions, fascination with mathematics which caused that the main-stream economics (neoclassical) was developing not necessarily coherently with the classical economics. Thus, it is worth to mention another accusation (p. 14) against the neoclassical economics, i.e. formalism.On the basis of the considerations in question, there appeared analyses on the formalist revolution, on whether the application of the paradigm shift as a model for the scientific development is justified and, consequently, whether the neo-institutionalism is to replace (when?) the “hard-core” theory.On reviewing the following thesis, I would like to highlight that the Author holds a separate, not always corresponding opinion on the functioning of the economy, thus for his scientific considerations he coined a name of the dynamic economy theory. He claims that the real world is an “anti-equilibrium” world, or, in the best case scenario, the world consists of numerous partial equilibria that overlap one another and create a general equilibrium, in which money and financial flow are becoming more and more important. Moreover, the author rejected the neoclassical theory of employment and payroll and neoclassical theory of enterprises.The author presented his scientific considerations in nine chapters. Thus, in the first chapter entitled Microeconomics bases for main-stream macroeconomics (ps. 27-59), the author made a general review of the general equilibrium theory, neoclassical theory of employment and payroll and neoclassical theory of enterprises. A part of the chapter which I found particularly interesting (from the page 42) refers to marginal and variable costs and a rapid technological development.In the second chapter entitled: Theory of dynamic economy (TDE ps. 59-105) the Autor detailed thought-provoking research tasks and drew some conclusions. He thus assumed that the capitalist economy does not head for a long-term equilibrium; instead the economy may reach the state of equilibrium as a result of ensuing and intertwined short periods. Nonetheless, it was claimed that the equilibrium on the market of goods and services does not have to result in the use-up of the labour force and companies’ productivity, which, in turn, may bring about a phenomenon of the forced unemployment, in accordance with the views by John M. Keynes. On the other hand, profits in the dynamic economy are reaped from innovations fostered by entrepreneurs and their followers (see the Schumpeter theory). The author summed the chapter up by claiming that the assumptions in question prove that the price of short-term equilibrium covers the average full production costs, instead of marginal costs, as stipulated in the neoclassical theory.The Keynesian Revolution and the neoclassical synthesis were described in the third chapter (ps. 105-142). The Author claimed that practically all assumptions underlying the dynamic theory could be reconciled with the arguments by Keynes, regarded as revolutionary ones. However, the IS-LM model cannot be reconciled with the theory of dynamic economy unless some essential adjustments are to be made, i.e. taking into account the increase in real wages over a short period of time. Equally interesting are the arguments presented by the Author to challenge the Phillips curve, as the latter appears to be completely contradictory to his theory. Its lack of adequacy springs from a neoclassical postulate saying that the prices can, over a short period of time, rise or fall proportionately to changes to the nominal wages.In the fourth chapter entitled The neoclassical counter-offensive (142-201), the Author, while analysing the monetarism, claimed that an increase in money supply by the central bank did not necessarily have to trigger improvements in the economic situation. Hence, the Author accused the orthodox economics of ignoring a highly essential source of an increased money supply, that is an increase in nominal wages. One should agree with the Author (p. 204 and the following pages), that an attempt to analyse the economics dynamics, made by the real business-cycle theorists, should be assessed in a positive way, and that certain reservations should be made to the arguments by the Neo-Keynesian economics school, stating, among others, that economic fluctuations and forced unemployment phenomenon result from the rigidity of wages and prices, as well as other market imperfections (p. 221 and the following pages.).The fifth chapter is called Neo-Keynesian economics (ps. 201-261) where the Author evaluated controversial issues connected with the rigidity of wages and prices. Their scientific interpretation was based on the statement that real rigidity of wages and prices was caused by other factors. The author also claimed that, despite of being detrimental to the economy, they also can play a useful role there.The business cycle was described in the chapter no. 6 (ps. 261-315). The Author assessed in the chapter a demand for a growing production volume, crisis triggering mechanisms, falling marginal productivity of the capital, currency-related crises and other issues. The Author often challenged his opinions with the theories by Keynes, Say, Minsky. Equally thought-provoking, from the methodological point of view, are the analyses of the problems, such as: reasons for the occurrence of business cycles, the effectiveness of the fiscal and monetary policy, economic freedom, advantages of international economic integration.The seventh chapter, named The stabilisation policies (ps. 316-377), referred to the monetary and fiscal policies. On analysing the fiscal policy (ps. 344-349) the Author shared doubts as to its effectiveness, voiced by the representatives of the main-stream economics. However, he stated (ps. 363-409) that his opinion on the reasons for its non-effectiveness is a slightly different one. Hence the Author confronted his arguments with phenomena and tendencies described by F. E. Kydland and E. C. Prescott, R. J. Barro, D. B. Gordon and many others.In the eighth chapter entitled The economic liberty (ps. 377-445) a series of accusations against the free-market economy, brought by left-wing economists, were analysed. The Author’s deliberations focused on the functioning of the market of imperfect information, perfect competition, the level of complexity of the social and economic systems; he also evaluated processes related to market confidence and trust to the state.The ninth chapter presented selected issues on economic integration (ps. 445-490). The author analysed, among others, advantages and costs of accession of particular countries to international economic groups. The ensuing findings are correct; they refer to the theory of optimum currency area, developed by the main-stream economists in 1960s - 1970s. However, the Author underlined that modern theories seem to be more contentious.The paper Modern macroeconomics and the dynamic economy by Józef Chmiel has been consistent with the wide-ranging discussion about current and future problems which the economics, economics schools or independent researchers have to face. The thesis is well-documented from the methodological and methodical point of view. Particular chapters supplement each other as to their substance and form the Author’s logical thought construction. In many cases it referred to the views by Polish economists, such as G. Konat, T. Smuga (editor) Paradoksy ekonomii. Rozmowa z polskimi ekonomistami (2016); and Przewodnik po moralnym kapitalizmie by M. Belka and P. Bańbuła (2016). The paper is also a kind of addendum to the thesis by A. Grzelak, K. Pająk Nowe trendy w metodologii nauk ekonomicznych i możliwości ich wykorzystania w procesie kształcenia akademickiego.(2012)To sum up, I could state that the thesis Modern macroeconomics and the dynamic economy by Józef Chmiel will broaden the knowledge of its readers and researchers of micro and macroeconomics process shaping the trend of changes in the market economy.