International Money and International Economic Relations

Progress in economics consists, for the most part, in the development of new definitions and the reclassification of concepts. The Keynesian Revolution was, as Harrod reminds us, in large part due to “Keynes’ extraordinarily powerful intuitive sense of what was important that convinced him that the old classification was inadequate. It was his highly developed logical capacity that enabled him to construct a new classification of his own” (Harrod, 1963, p. 463). A similar conceptual reclassification approach is necessary today if economists are to devise cures to current world-wide stagflation tendencies. World-wide stagflation, the breakdown of the fixed exchange rate system of Bretton Woods, and the power of the OPEC cartel to manipulate the dollar price of a basic raw material are not accidental events that all happened to occur in the 1970s. They are, instead, related causes and effects of the second great crisis for modern, monetary, entrepreneurial economies in the 20th century. Unless economists reshape their conceptual framework, they will be unable to offer practical solutions to the current potentially fatal economic processes plaguing our world. In this paper,1 I hope to provide some indications of a fresh approach that can be developed to shed new insights upon the current slowdown in economic development and growth among the interconnected industrialized nations of the world.