Wednesday, February 22, 2017

Crisis and Cycles in Economic Dictionaries and Encyclopaedias by Daniele Besomi

This is a review of this edited book that was just published in the Review of Political Economy.

This substantial volume provides an interesting and exhaustive discussion of the theories of business cycles as presented in the main economic dictionaries and encyclopedias over a period of almost two centuries. For the most part the content corresponds to the views of key authors who contributed to the development of the theories of fluctuations. Some major authors are nevertheless not directly covered, presumably because they did not write, or were not the subject of, encyclopedia entries. Joseph Schumpeter is one example of an important author who is not covered. Several chapters are devoted to schools of thought, e.g. Real Business Cycles, or to subfields like Political Business Cycles. The editor’s decision to focus on dictionary entries reflects his belief that these publications were authoritative and influential, and that the views expressed in them carried significant weight.

Part I, which is comprised of four chapters written by the editor, Daniele Besomi, provides an invaluable discussion of the history of economic dictionaries, and a useful analysis of the different terms economists have applied to what we now call the business cycle. The distinction between cycles proper and crises is central to the way Besomi classifies cycle theories, and again becomes relevant at the end of the volume when some alternative views are analyzed.

Part II discusses the so-called classical dictionaries, and covers a vast number of contributions from the early 19th century until approximately the late 1960s, including entries on crucial authors like Wilhelm Roscher, Clément Juglar, Adolf Wagner, Mikhail Tugan-Baranovsky, Arthur Spiethoff, Wesley C. Mitchell, Arthur Burns, Trygve Haavelmo and Jan Tinbergen. Dictionaries in French, German, Italian, Russian and Spanish are represented. The chapters explain the evolution of views on fluctuations, from a general discussion of unsystematic crises, to the analysis of more regular crises dependent on the state of confidence, and from Marxist crises of underconsumption, overproduction and disproportionality, to the development in the 1930s of the shock and propagation mechanism theories, which rely on more precise formal mechanisms to explain fluctuations.

The absence of some key names is unfortunate. Given the importance of the multiplier mechanism, Kalecki and Keynes deserve more attention than they get in this book. John Maurice Clark and the accelerator principle also get minor mention. More importantly, Besomi does not clearly distinguish theories that see the cycle as the result of external shocks from those that emphasize the endogenous character of economic fluctuations. There is a brief discussion on how Mitchell’s views rely in an informal way on the interaction of the multiplier and the accelerator, but no specific entry on the theories in which these two mechanisms are the key generators of fluctuations. Nor is there a full discussion of Richard Goodwin’s predator-prey model, which together with the multiplier-accelerator mechanism, provides one of the fundamental explanations of business cycles as endogenously generated phenomena. There is a brief discussion of the predator-prey mechanism in a chapter on nonlinear cycles, a field in which Goodwin formalized ideas developed by Nicholas Kaldor and John Hicks. Goodwin’s growth-cycle model was developed in the period of the classical dictionaries, but presumably was not discussed in any of them.

The last part of the book covers the period of the recent dictionaries. Nikolai Kondratiev and Long Wave theories of the cycle are discussed in this part, along with Real Business Cycles, political cycles and nonlinear cycles. There is no discussion of how the mainstream, which had accepted the multiplier-accelerator framework during the period when the Neoclassical Synthesis held sway, came to adopt optimizing models with imperfections and demand shocks as the main explanation of fluctuations. All we are told is that these models arose in reaction to Real Business Cycle theory. Aside from its discussion of long waves, the book offers no explicit chapter on heterodox views of the cycle (unless one classifies all nonlinear cycle theories as heterodox—a questionable view, to say the least). This seems to be due not to the failure of recent encyclopedias to discuss heterodox theories but to the choices Besomi and his contributors made regarding which dictionaries to consider.

To some extent this problem is mitigated by the thought-provoking last chapter on the return of crisis theory, also penned by the editor. Recent theories of crisis tend to emphasize the non-calculable, or qualitative, aspects of fluctuations, as against the more formal and mechanistic elements of cycle theories. In this chapter some entries that explicitly deal with Marxist and Post-Keynesian theories are discussed. The view of crises, particularly financial crises, as endemic within this context is also examined, although the work of Hyman Minsky, which is central to this topic, is not explicitly explored. There is only one brief mention of Minsky, in an early chapter by the editor on the taxonomy of fluctuation theories.

Most of the concerns I have raised about the coverage in this impressive volume are related to the choice to analyze the evolution of views on crises and cycles through the lens of entries in the most prominent dictionaries and encyclopedias. This provides a relatively easy way to determine the consensus view at a particular point in time; but it also precludes a more critical understanding of the limitations of conventional wisdom. This is by no means a disqualifying feature of the volume under review; it is merely an editorial choice that privileges certain views at the expense of others—a trade-off that, at the end of the day, is unavoidable. This volume is a tour de force, and will remain an essential resource for those interested in the history of business cycle theories.

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