The business cycle has been studied, rejected, restudied, and reaccepted during various periods of the past century, especially after the writings of Lord John Maynard Keynes in The General Theory of Employment, Interest, and Money (1936). The point of this paper will be to briefly discuss selected business cycle analyses--newer and older--in terms of a broad approach within the framework of major parts of institutional (evolutionary) and Post Keynesian economic analysis, taking into consideration historic, economic, sociological, and psychological analysis--hence the terra econsochology. In doing so, the "molecular" concept of the institutionalists will be utilized as a connecting theme throughout.
Selected Institutionalist and Post Keynesian Concepts
The institutionalists, unlike the neoclassicalists, stress the concept and importance of institutions. For example, the existence or nonexistence of a central bank is important, and the development of the modern corporation versus the "orthodox," neoclassical "village fair" is also important. The "village fair" had closed borders in a moment of time, and all transactions were supposedly fulfilled therein. The financial world of modern capitalism, as the Post Keynesian Hyman Minsky (1977, 1982) told us, is not with fixed borders or fixed time and involves complex, financial transactions involving the future and, thus, risk. Both the institutionalist and Post Keynesian analyses are cognizant of the importance of institutions and their behavior (Brazelton 1981). Institutions are, and they make a difference, as do their methods of operation.
Both the institutionalists and the Post Keynesians are also cognizant of social change. Unlike the neoclassicalists, both believe that change takes place and that such change is important. Not only is the American economy of 2005 different from that of 1905 but the institutions of it have changed as well in terms of behavior, purpose, and importance. In 1905, there was no Federal Reserve in the United States and bank panics occurred almost from decade to decade. After 1913, there was a Federal Reserve, but it did not realize its ability to greatly affect the economy (at least not as much as after the 1930s and beyond) and was tinder the theoretical concepts of neoclassicalism. Now, in 2005, its power is better realized and more effectively utilized. Changes took place in financial institutions--in how they operate and in financial markets as well. A lender of last resort makes a difference. If one should view these changes in terms of institutional analysis, one would be reminded of the "Veblenian dichotomy" and the "ongoing" struggle between the "backward-binding" institutions of the past and present versus the "forward-urging" technological improvements available for the future. One may argue that new technology can be harmful (environmentally, for example), but such harm may not be the fault of the technology, per se, but, rather, how the users use, misuse, or overuse it.
In terms of socioeconomic change as discussed above and in the Veblenian dichotomy of the institutionalist, the Post Keynesians have added two separate but related concepts. Paul Davidson (L. Davidson 1991; P. Davidson 1993, 1996, 2002), for example, reminded us of the dual concepts of "non-ergodicity" and "hysterisis." The neoclassical concept is that after the economy readjusts to a disturbance back to equilibrium, it is essentially the same as before. Full employment returns to full employment, and nothing else changed or is mentioned. But other things have happened and do happen! The world of economics analysis and policy after the 1930s was never like the prior world of economic analysis and policy. There had occurred the depression of the 1930s, World War II, Bretton Woods, and John Maynard Keynes! Thus, Davidson reminded us of the concepts of "non-ergodicity" and "hysterisis." The former points out that after a system recovers from a major disequilibrium, the probability that it will be forever different from before is significant. The Federal Reserve changed from 1930 to 1950 and beyond--as an institution and as to policies. The economy changed...