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General Equilibrium, Capital and Macroeconomics
A Key to Recent Controversies in Equilibrium Theory. New Directions in Modern Economics Series
This book argues that the shift in general equilibrium theory, from its early long-period to the modern very-short-period versions, has had very important consequences which are insufficiently appreciated by large parts of the economics profession. This shift has produced new difficulties, and has undermined central tenets of neoclassical macroeconomic theory (such as the negative dependence of aggregate investment on the interest rate, or the existence of a downward-sloping demand curve for labour) which had their basis in the long-period versions where capital was treated as a single factor.
According to the author, what makes it difficult to appreciate these consequences is the current imperfect grasp of the long-period method (an approach common to classical and to the first generations of neoclassical economists, but nowadays often confused with steady-growth analysis). The origins of this problem date back to the 1930s, and to this day still obscure the history and the logic of the neoclassical approach. The book explains the analytical differences between long-period, steady-growth, and short-period general equilibrium analyses, and proves that on this basis considerable clarification can be achieved, not only in many aspects of the history of economic theory, but also in fundamental issues in the theories of value, distribution, capital, investment, employment and money. For example, the reasons for the disagreements in the `Cambridge controversies' over capital theory become very apparent.
This stimulating critique on the present state of economic theory will appeal to academics and researchers with an interest in macroeconomics, the history of economic thought, and the theory of value and distribution. It will also enlighten and inform anyone wanting to understand the reasons behind the current dissatisfaction with neoclassical economics.
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What Reviewers Are Saying
`Petri's book is a painstakingly rigorous work of historical reconstruction designed to show that the neo-Walrasian general model proves logically indefensible in any case and constitutes the latest and most glaring proof of the blind alley in which neoclassical theory has been groping for over 70 years. The language is clear and the arguments will be accessible to readers encountering the critique of the neoclassical theory of capital for the first time. The use of mathematics is kept to the bare minimum. The book could serve as a supplementary reference for an advanced course in economic theory for graduate students.' -- Emiliano Brancaccio, Review of Political Economy `Fabio Petri's book is a tour de force of critical economic analysis that carefully dissects the explanatory limitations of modern general equilibrium theory. The author shows how these weaknesses are connected to the capital controversies of the last century and to a little-noticed but scientifically disastrous shift in the orthodox conception of equilibrium. Having exposed these connections, he then presents a highly original discussion of their relevance to modern macroeconomics. The book's powerful case for the classical surplus approach will challenge the preconceptions of both neoclassicals and post Keynesians alike.' -- Gary Mongiovi, St John's University, US `Fabio Petri has been a persistent critic of marginalist theories of value and distribution. In this provocative book, he presents an extensive scrutiny of the reasons why many economists are unsatisfied with the Neo-Walrasian approach to General Equilibrium theory and why some reject it altogether. General Equilibrium, Capital and Macroeconomics throws down a challenge to all economic theorists.' -- Neri Salvadori, University of Pisa, Italy `General Equilibrium, Capital and Macroeconomics is a thorough and deep book. It contains a remarkably clear and precise statement of the conceptual, methodological and analytical difficulties besetting the demand and supply approach to economics as it is advocated in partial and general equilibrium models, old and new, micro and macro. This work covers essential parts of modern economics, it is well written and the subject matter is carefully arranged. The book will be of interest to a wide range of economists.' -- Heinz D. Kurz, University of Graz, Austria