A MODEL OF INTERACTION BETWEEN THE VIRTUAL AND THE REAL ECONOMY

This paper demonstrates through a formal model how the wealth effect created by a stock market boom leads to the expansion of demand and output mostly through debt‐financed private consumption. However, inherent in this expansion is the threat of a subsequent contraction caused by the rising burden of servicing debt and falling creditworthiness. The formal analysis captures more precisely these conditions; it shows that, even in the medium run, the growth rates of the wealth in the stock market and of the real economy may move in opposite directions.     

The extinguishing process: A case study of steel technologies in the world industry

This article examines the elimination of two old steel technologies, the Bessemer method and oxygen-steelmaking. This particular aspect of technological change has not been explored much, whereas substantial effort has been put into determining how these, and other steel technologies were originally adopted. The limited objective of this paper is to conduct a time analysis, i.e., to establish when the two processes began to be phased out, the pattern of such elimination, and how long it took for the steel industry to abandon completely these once-dominant technologies. While the elimination, or extinguishing of the two technologies was relatively fast in terms of their whole life-span, old technologies tend to hang on in a residual role a rather long period of time.     

Market alternative to state activism in restoring the capitalist economy

The theory of economic transition is concerned less with the end product of building a capitalist economy than with intermediate solutions and the appropriate pace of institutional change. This article advances theoretical arguments on the advantages of a self-grown, evolutionary restoration of the capitalist economy in Eastern Europe or any country abandoning the socialist experiment.The article develops the point that of the two basic methods of setting up an economic order—the state or a market-type mechanism—only the latter can assure the emergence of a genuine, complete market. Further, it suggests that markets with self-interested individual actors at the center are not only superior to states in the allocation of scarce resources, be they economic or political, but are also the best vehicle for institution building.     

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Confucian economics: how is Chinese thinking different?

The Chinese have their economics. Not yet acknowledged, it is contained in the Confucian thought. Called by me ‘Confucian economics’, it sharply differs from the Western ‘Liberal economics’. Individuals seek posterity through offspring, rather than ‘instant gratification’. Resources are not seen as scarce but as abundant. Rather than take resources from others, people work to make a living. The work ethics and not the profit margin is a key motive. Individuals work not for themselves but for their family. The family is a source of moral sentiment, understood as responsibility for others. This is why the main institution is family and not market. To Confucians, the key principle is equality, which precedes efficiency. Inequality upsets ‘social peace’, as a precondition for growth. Built on Liberal principles, the Western capitalist system is a market one. The Chinese system, which I call ‘Confucian system’, is also market-based. The former is a ‘free market’ animated by individuals, the latter is a ‘familial market’ built around households. Both approaches advocate ‘minimal state’, but for Liberals the state is a ‘night watchman’ to ensure the security of resources, while for Confucians, the state is a moral guide to enable social harmony. As a theory, Confucian economics is a form of ethics and the Liberal is not. China has never abandoned Confucianism. The recent reforms are not about rolling back the Soviet model to establish a capitalist system. Relying on Confucian economics, China is reviving Confucian system. Paradoxically, the ancient Confucian economics has become the engine of China’s modernity. This is a key reason for China’s ‘longest boom’. To extend it, China needs to refocus its policies from ‘capital formation’ to the ‘moral cultivation’, along the Confucian principles.     

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