A real and monetary analysis of capitalism

Building on ideas of Joseph Schumpeter, this paper constructs and compares a real and a monetary model of capitalism. The paper’s thesis is that real and monetary analysis are both necessary for describing the capitalist cycle. The real model is in four parts. The first part is a simplified static Walrasian exchange. The second part uses a time dynamic to show price and productivity equilibrium over time. The third part defines surplus-value, capital, accumulation, profit and producer’s surplus. The fourth part defines economic evolution and long-term analysis. Each of the four parts has a corresponding Mathematica program and a table of sample data. The real model shows a relationship between long term average profit, GDP and capitalization. A monetary model is then constructed which empirically defines monetary and real products, the capital-market, the real economy and investment. The monetary model is first described under conditions of laissez-faire. The concepts of appreciation, overinvestment and the capitalist cycle are defined with the aid of the real model. Finally, the post laissez-faire capitalist cycle is described with an emphasis on the government policies of post 1980 capitalism. The conclusion of the paper—based on the real and monetary models—is that post 1980 capitalism changes but does not eliminate the capitalist cycle because government policies do not address over-investment, rather these policies abet over-investment.