Flaws of Modern Economic Theory: The Origins of the Contemporary Financial-Economic Crisis

Ezra Davar

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DOI: 10.4236/me.2011.21004                

Abstract

The Paper shows how fundamental flaws in the modern economic theory are a central part in the formation of financial bubbles: 1) The Keynesian multiplayer is based on the substitution of the cause (the national in-come) for the effect (investment); which yields inadequate results. 2) Modern general equilibrium theory is based on the following assumptions: a) modern version of free goods conception; b) “Walras’ Law”; This is realistically absurd, as according to these assumptions, the equilibrium price of some goods and services might be equal zero. 3) Modern money theory assumes that fiat money is the only type of money, which is erroneous.

Keywords

Flaws of Modern Economic Theory, Keynes’s Multiplier, Modern General Equilibrium Theory, Modern Money Theory, Smith, Walras, Keynes

Conflicts of Interest

The authors declare no conflicts of interest.

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