Instability, Volatility and the Process of Capital Accumulation

It is ironic that the breakdown of the golden-age of post-war capital accumulation in the 1970s should have signalled the crisis of Keynesian economics. Ironic, for as Fausto Vicarelli pointed out, Keynes’s entire theoretical edifice was constructed in order to interpret the instability of capitalism, indeed ‘the stimulus to his analysis was always some moment of capitalist crisis’. In contrast to those announcing the ‘crisis of Keynesian economics’ in the face of the increasing instability of the 1970s, Vicarelli argued forcefully ‘that Keynes’s thought has direct relevance to the present moment of capitalist crisis’ (Vicarelli, 1984, p. 184). Yet, as a result of the crisis, the majority of economists have abandoned Keynes’s theory in favour of what has come to be called the ‘New Classical’ economics, which seems to exclude instability by definition, or the inappropriately named ‘New Keynesian’ economics, which seems to rely on the failure of the perfectly competitive market to allocate information efficiently.