Dr. Barkley Rosser Presents A Conceptual History of Economic Dynamics
On Monday, Jan. 27, 2014, Dr. Barkley Rosser delivered a seminar giving a brief conceptual history of economic dynamics.
Endogenous and exogenous factors defined
Rosser began his seminar on a conceptual history of economic dynamics by noting the difference between endogenous and exogenous factors and how each can affect different macroeconomic (and some microeconomic) models. Endogenous factors are those that occur naturally in a model, while exogenous factors are those that affect the economy from the outside. This seminar focused on endogenous factors, meaning the models would not focus on “shocks” from the outside world causing fluctuation in the economy.
At the beginning of the seminar, Rosser spoke briefly about exogenous models and how they are somewhat outdated. Most of the models were developed in a time when the main industries were textile and agricultural and depended heavily on the weather. The modern version of those theories recognizes multiple equilibria, dependent upon the mindset of investors.
“There are multiple equilibria…it is a self-fulfilling prophecy story that is run by the giant flying mongoose, which plugs into everybody’s head some level of expectations,” said Rosser. “One day we’re all really excited and optimistic about the future…or another year, the giant flying mongoose injects into us fear.”
Rosser explained that most of the early macroeconomic discussions were exogenous like this one, although that eventually changed.
Malthus vs. Ricardo: A great debate
After the discussion of exogenous versus endogenous factors, the seminar focused on the long debate between the views of Malthus and Ricardo, each of whom has been backed by multiple economists through the years. Following the Napoleonic wars, the economy faced a downturn as certain sectors stimulated by war started to decline and people were laid off.
Malthus believed the focus should be on public spending, as aggregate supply is greater than aggregate demand. If the public had money to spend, it would stimulate the economy and unemployment rates would go back down. Ricardo, on the other hand, said the recessions were a temporary adjustment process and that the declining sectors would lead to other sectors, thus balancing the economy. He believed no fiscal policy was necessary and that things should be left alone.
Defenders of Malthus and Ricardo
After introducing the debate between Malthus and Ricardo, Rosser talked about other economists throughout the years who had supported either side of the fight. First, he talked about Jean Baptiste-Say, who believed that in the long term the economy balanced out, but that in the short term it might not be able to survive. Therefore, he supported Malthus in that there should be public spending to stimulate the economy. The next economist Rosser talked about was Sismondi, who also supported Malthus. He was a big influence on Marx and supported fiscal policy. Additionally, Sismondi was the first to hint at the possibility of endogenous cycles.
Next, Rosser began speaking about John Stuart Mill, a big defender of Ricardo. Mill focused on how bubbles operate, and noted that they are often triggered by some exogenous shock that causes market prices to rise. However, the economy has experienced some really big bubbles, such as the stock market crash in 1929 and the dot com bubble of the late ‘90s, that don’t align with any exogenous trigger.
Haberler’s taxonomy of 20th century business models
Monetary theory. Rosser ended his seminar with a discussion of Haberler’s taxonomy of 20th century business cycle models. He briefly explained each of the models. First, Rosser explained Hawtrey’s monetary theory, which states that the credit system is unstable and that monetary fluctuations are the prime driving force of business.
Over-investment theories. After the Monetary Theory, Rosser discussed three different over-investment theories. First of the three was the monetary theory of over-investment, in which Wicksell encouraged a free market where the rate of interest was due to the market being untouched.
The second over-investment theory was non-monetary, which recognized a production lag. It occurred when there was big scale capital investment, which led to the inability to sell all the products, ultimately leading to a cut back. Rosser’s example of this happening was a theory of the cause of the Great Depression, which says the automobile industry overproduced cars, thus saturating the market and leading it to crash. Rosser noted this theory is tied to microeconomic cobweb dynamics, which is when farmers plant crops in response to the current prices.
The last over-investment theory Rosser covered is the acceleration model, which occurs when there is an overshooting of investment responding to changes in the demand of the products.
Under-consumption theory. After the over-investment theories were covered, Rosser spoke briefly about under-consumption theory. Under-consumption was originally from Malthus and Sismondi, but Hobson redid it. It called for the need to redistribute money to the poor so they could buy products and boost the economy. Rosser stressed that over-investment and under-consumption are essentially identical, given the fact they are both due to people not buying things, but the politics behind the theories are very different.
“Intellectually, there is no difference between the over-investment theory and the under-consumption theory,” said Rosser. “In purely technical, logical terms, under-consumption and over-investment theory are identical. However, in terms of politics, they are totally different.”
Psychological theory. Rosser ended the seminar with a brief description of the psychological theory, with which Keynes and Pigou identified. The theory was highly endogenous, claiming that the stock market went down because spirits were low. When people get depressed the market depresses as well.
Rosser’s presentation of the history of economic concepts covered a wide array of theories and ideologies that have been presented to explain economic cycles and potential solutions to the fluctuations. The audience, comprised mostly of fellow economics professors, differed in schools of thought and was very diverse, as far as economic ideology is concerned.
By Alix Carlin (Communication Studies, ’14)