Beyond “Austerity vs. Expansion”: Elements for a Structural Theory of Liquidity Policy

Recent years have been marked by a sustained, often inconclusive, debate between two opposing views of economic policy. Economists mainly concerned about the economic fluctuations associated with inflationary pressures, credit bubbles and bankruptcies, have turned to "austerity policies" as ways to restore confidence and make investment decisions attractive. On the other hand, other economists worried about deflationary pressures, liquidity shortages and unemployment have turned to expansionary policies designed to create a virtuous circle of consumer and investor confidence, leading to higher overall spending and self-sustaining growth. This article argues that a conceptual shift is needed to provide an adequate explanation of the fluctuations in a modern industrial economy and to provide effective guidance for stabilization and growth policy in the short and medium term. The article draws attention to the structural theory of economic fluctuations and crises formulated at the turn of the 20th century and suggests that this theory provides the conceptual elements needed to overcome the micro-macro dichotomy and understand the differentiated response patterns to shocks characterizing industrial economies. The article lays the groundwork for future discussions, highlighting the central role of aggregation levels and sectoral interdependencies as a mechanism for generating macroeconomic relations. It then examines the structural asymmetries that characterize economic dynamics, as well as the resulting opportunities and constraints of economic policy. The article concludes with the presentation of the elements of a structural theory of liquidity policy and its implications for the relationship between austerity and stimulation as a means of stabilization

Structural liquidity: The money-industry nexus

This paper addresses the relationship between liquidity and production activity. It argues that this relationship becomes fully evident only if one considers intermediate levels of aggregation, and in particular stages of production within each industrial sector and their interdependence across sectors. To illustrate this, the paper introduces the concept of structural liquidity, which denotes material funds that are endogenously formed within the productive system before one considers the provision of liquidity by means of money. Structural liquidity is analyzed by combining (i) the representation of the productive system as an arrangement of fabrication stages sequentially related in time; and (ii) the representation of the productive system as a set of interdependent industrial sectors. The analysis identifies the structural liquidity problem as the need to satisfy both a viability condition (deriving from sectoral interdependencies) and a full employment condition (deriving from the sequencing of fabrication stages). The analysis highlights previously unexplored trade-offs, which have wide-ranging implications for monetary and liquidity policy

The deindustrialisation/tertiarisation hypothesis reconsidered: a subsystem application to the OECD7

The diffusion of outsourcing, both national and international, and vertical FDIs among manufacturing firms, along with the higher integra- tion of business services in manufacturing, has recently led to question the empirical evidence supporting the Deindustrialisation/Tertiarisation (DT) hypothesis. Rather than a \real" phenomenon, it has been argued, DT would be an \apparent" one, mainly due to the reorganization of production across national and sectoral boundaries. The empirical studies that have dealt with the topic so far have not been able to effectively rule out such possibility, because of two main limitations: the sectoral level of the analysis and/or the national focus. In order to overcome them, the paper carries out an appreciative investigation of the actual extent of the DT occurred in the OECD area over the '80s and the '90s by moving from a sector to a subsystem perspective, thus retaining both direct and indirect relations, and by referring to a \pseudo-World" of 7 OECD countries, thus taking into account the \global" dimension of the phenomenon. The results strongly support the DT hypothesis: although the weight of business sector services in the manufacturing subsystem increased, acting as a counterbalancing tendency to the manufacturing decline, subsystem shares significantly decreased, thus confirming DT as a more fundamental trend of modern economies

Political Economy of Civil Society

This chapter explores the role of civil society in relation to the economy and the polity by focusing on three distinct yet related dimensions: (1) the conceptual history of civil society in relation to political economy; (2) the theory underpinning a political economy of civil society; (3) the implications of a political economy of civil society for policy-making. The main argument is that there is a fundamental difference between ancient and medieval conceptions, which emphasise natural sociability, and modern accounts that accentuate a violent ‘state of nature’. As a result, civil society either reflects the fundamental embeddedness of economic and political processes in social relations or is an artificial construct. The chapter develops a typology of four modern models, provides a theory of the political economy of civil society and outlines a series of policy ideas

The role of war in deep transitions: exploring mechanisms, imprints and rules in sociotechnical systems

This paper explores in what ways the two world wars influenced the development of sociotechnical systems underpinning the culmination of the first deep transition. The role of war is an underexplored aspect in both the Techno-Economic Paradigms (TEP) approach and the Multi-level perspective (MLP) which form the two key conceptual building blocks of the Deep Transitions (DT) framework. Thus, we develop a conceptual approach tailored to this particular topic which integrates accounts of total war and mechanisms of war from historical studies and imprinting from organisational studies with the DT framework’s attention towards rules and meta-rules. We explore in what ways the three sociotechnical systems of energy, food, and transport were affected by the emergence of new demand pressures and logistical challenges during conditions of total war; how war impacted the directionality of sociotechnical systems; the extent to which new national and international policy capacities emerged during wartime in the energy, food, and transport systems; and the extent to which these systems were influenced by cooperation and shared sacrifice under wartime conditions. We then explore what lasting changes were influenced by the two wars in the energy, food, and transport systems across the transatlantic zone. This paper seeks to open up a hitherto neglected area in analysis on sociotechnical transitions and we discuss the importance of further research that is attentive towards entanglements of warfare and the military particularly in the field of sustainability transitions

A Theory of Similarity and Uncertainty

The paper calls attention to the ontological and epistemic roots of uncertainty, and emphasizes the plurality of grounds that could make evidence uncertain and induction tentative. In particular, we have seen that the sources of uncertainty are manifold due to the interplay of circumscription difficulty and epistemic complexity. However, it is precisely this lack of determinacy that allows the handling of uncertainty by means of a principle of non-exclusion. This is because the domain of similarity relations coincides with the partial overlap of the ontological and epistemic sets. The relationship between similarity and likelihood implies that multiple orders of likelihood are also possible: any given situation may be less or more likely depending on which particular order we are considering. In short, the domain of knowable uncertainty is constrained both on the ontological and the epistemic side. Within that domain, uncertainty allows similarity relationships and permits the assessment of likelihood. Multiple orders of likelihood may be associated with different degrees of rational belief as they are not all founded on an equally solid knowledge basis. However, as we have seen, multiple overlaps of likelihood orders may be possible. It is reasonable to conjecture that confidence in the likelihood assessment for any given situation would increase if a variety of different orders of likelihood were to assign the same likelihood assessment for that particular situation. For example, it is reasonable to think that situations associated with different orders of likelihood for the short- and the long-term would in fact be associated with strongest likelihood confidence in the case of cross-over points. In short, uncertainty at its most fundamental level is associated with co-existence of different orders of similarity and likelihood. This co-existence makes it very difficult to assess particular situations, as they might look respectively likely or unlikely depending on which features are considered. Clearly this difficulty may be due to the way in which any given situation is circumscribed, or to the categories available to make sense of existing circumscriptions. However, different likelihood orders may sometimes intersect one another (see above). This means that the very plurality of uncertainty dimensions that makes it difficult in general to assess any given situation, may turn out to be an advantage when facing the special circumstances in which the same assessment of the situation in view is grounded in a plurality of different orders of likelihood

A Smithian Theory of Choice

The aim of the paper is to develop and formalize Smith's theory of deliberation under social constraints. The paper also explores the implications of Smith's theory for the analysis of choice issues that have been of special interest to economists and moral philosophers. In particular, the paper outlines a formal argument in which Smith's theory is expressed in terms of binary structures conditional upon particular sets of situations. The paper also discussses rationality twists and the possibility of avoiding them if situational constraints are appropriately identified (by the method of circumscription). A discussion of the alternative congruence criteria in Smith's theory of social interaction concludes the paper