Capital and Credit

Contemporary general equilibrium theory is characteristically short-run, separated from monetary aspects of the economy, and as such does not deal with long-run problems such as capital accumulation, innovation and the historical movement of the economy. These phenomena are discussed by growth theory, which assumes a given or shifting production function, and in turn cannot therefore deal with the fundamental problem of growth, namely how the production function is derived and how production and innovations are financed. Thus traditional theories have a common weakness in that they divorce real economic growth from the activities of the financial sector. This book provides a much-needed synthesis of growth theory and monetary theory. The problem of the derivation of the production function was examined by von Bohm-Bawerk, Wicksell, Hayek and others, but was ignored by post-war general equilibrium theorists. Reconstructing their theories in terms of von Neumann's framework, Professor Morishima examines real growth theory in order to establish the existence of a sequence of temporary equilibria. Economic growth along the line of this sequence is only feasible if funds are made available by financial markets, preventing involuntary unemployment. Professor Morishima thus draws on the work of Schumpeter, Keynes and the pre-war neo-classical economists to formulate a capital-theoretic general equilibrium theory.