Crises and Liquidity – Institutional Alternatives

Recent global economic crisis calls for a new scientific approach towards economics, in particular with regard to the cyclic character of both the national and global economies. The very financial nature of all current crisis-related phenomena calls for a critical reconsideration of economic cycles, where the monetary system and the financial markets are viewed upon as catalysts or conductors of cyclic fluctuations. Current paper presents an attempt to char­acterize all major steps in the evolution of vari­ous theories, dealing with the role of monetary exchange as trigger and propagator of fluctua­tions within the business environment. These, known as “monetary”, theories of the economic cycles are wider in scope than the pure “cash flow” theories. Set against their incoherent back­ground and the recently voiced concerns with regard to their prognostic merits, the institutional theory has a prominent place and a major role to play. Born as kind of “revolt” against of the scien­tific establishment, it sets focus on the multiple facets of real life, rather than on formal schemes and rational speculations. One possible alterna­tive aspect of its practical applications deals with the problem of liquidity on a global level; an issue that the world regularly faces from the 17th century onwards. Major efforts and steps, undertaken by Central banks and governments of world’s leading states do need and receive theoretical grounds and rationale.