Lars P. Syll — Keynes vs. Wicksell — the loanable funds theory

Quote from Giancarlo Bertocco, "Some Observations About The Loanable Funds Theory"

Lars P. Syll’s Blog
Keynes vs. Wicksell — the loanable funds theory
Lars P. Syll | Professor, Malmo University

Ramanan — The Case for Concerted Action

Keeper Wynne Godley quote.

The Case for Concerted Action
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V. Ramanan

Unlearning Economics — The Myth of Neutral Money

More generally, I find the idea expressed by Friedman – that the economy will tend toward a stable, long term equilibrium, perhaps oscillating in the short term – is often used by economists, but is rarely fully justified. It is merely assumed that the economy will behave this way, and any erratic behaviour – such as money illusion, and sticky wages/prices – can be dismissed as short term ‘noise’. However, seems to me that such an idea can only be sustained by sweeping potential problems under the rug. Indeed, this supposed ‘noise’ (a) could be more relevant to understanding the system than the equilibrium and (b) could have a permanent impact on the economy and therefore equilibrium itself.

Unlearning Economics
The Myth of Neutral Money

Economic equilibrium is based on the assumption of near perfect markets in which imperfections are minor enough to be disregarded "in the long run," so that distortions are merely short terms phenomena that are correct by the operation of "natural laws."

Reality is characterized by imperfections that are far greater than assumed, and some those imperfections introduce a level of uncertainty that makes ergodic modeling idealistic rather than realistic.

There is nothing inherently "wrong" with idealistic modeling, which can be useful in understanding system by comparing and contrasting the behavior of different systems based on different assumptions and data. The mistake arises when idealistic models are confused with realistic ones.

For example, in the world imagined in idealistic economics based on equilibrium of perfect markets, efficiency and effectiveness are equated. That is to say the objective is efficiency, since economic efficiency is assumed to be most effective. 

This is seldom the case in the actual world however, where individual, social, political and economic considerations are involved and economic considerations are not necessarily paramount, other than to vested interests. Then, it may be to the advantage of vested interests to conflate economic efficiency with general effectiveness, to the disadvantage of other interests.