What is the economic root of money?

First, the theory of historical economic cycle

Why does the economic cycle come into being? For a long time, western economists have done a lot of research on this and put forward various explanations. Before the formation of Keynesianism, there were dozens of main business cycle theories, such as pure money cycle theory, over-investment cycle theory, innovation cycle theory, insufficient consumption cycle theory, psychological cycle theory, sunspot cycle theory and so on. These business cycle theories can be divided into two categories: exogenous business cycle theory and endogenous business cycle theory.

Exogenous economic cycle theory holds that the root of economic cycle lies in the changes of some factors outside the economy. For example, innovation theory holds that innovation causes economic cyclical fluctuations. Sunspot theory holds that the change of sunspots affects agricultural production and the whole economy, causing periodic fluctuations in the economy. Over-investment theory, a non-monetary country, holds that over-investment caused by the development of new fields, technological inventions or population growth leads to periodic fluctuations in the economy. The theory of political cycle holds that the government periodically stops creeping inflation or uses inflation to eliminate unemployment for political purposes (such as elections), which leads to economic cycle. There are also wars, revolutions, immigrants, accidents and so on to explain the economic cycle. This theory does not deny the importance of internal factors (such as investment). ) in the economy, but they emphasize that the root cause of these factors changes is outside the economic system, and these exogenous factors themselves are not affected by economic factors.

Endogenous business cycle theory seeks the factors of spontaneous movement of business cycle in economic system. This theory does not deny the influence of exogenous factors on the economy, but it emphasizes that this periodic fluctuation of the economy is caused by internal factors of the economic system. Therefore, every prosperity creates conditions for the next depression. The spontaneous movement of these factors in the economic system causes periodic fluctuations. For example, monetary theory holds that the economic cycle is caused by the alternating expansion and contraction of bank money and credit, and the movement of money and credit is a spontaneous process formed by an economy itself. According to the theory of overinvestment, overinvestment causes the alternation of prosperity and depression, and the root of overinvestment lies in the expansion of money and credit. According to psychological theory, people's optimistic or pessimistic expectations are the causes of periodic fluctuations, and economic factors are the reasons for this change in psychological expectations. Consumption theory attributes the economic cycle, especially the crisis of overproduction, to insufficient consumption caused by uneven income distribution, and so on.

Second, an overview of modern business cycle theory

Modern business cycle theory is an integral part of macroeconomics, which explains business cycle with the theory of national income determination.

Keynesian macroeconomics takes the national income determination theory as the center, so it takes the economic cycle theory as the driving force of the national income determination theory. The Keynesian school's economic cycle theory has several characteristics.

First, the level of national income depends on the total demand, so the main reason for the fluctuation of national income lies in the total demand. Centering on aggregate demand analysis is one of the characteristics of Keynes's business cycle theory.

Second, in the total demand, consumption accounts for a considerable proportion, but according to the theory and experience of modern economists, consumption is quite stable in the long run. Short-term changes in consumption, especially durable goods, also have an impact on the economic cycle, but it is not the main reason. Government expenditure is a factor that can be artificially controlled, accounting for a small proportion of net exports. In this way, the reason for the economic cycle lies in the change of investment. Therefore, Keynes's business cycle theory is centered on investment analysis, which analyzes the reasons for investment changes and its impact on the business cycle.

Keynes's business cycle theory is based on Keynes's analysis of the determination of national income, but different analytical methods and angles lead to different conclusions. For example, N Caldo, a British economist, based on Keynes's savings-investment relationship, analyzed how the differences before investment, after investment, before savings and after savings caused the economic cycle. American economist P Samuelson's multiplier-acceleration principle interaction theory analyzes how the relationship between investment and output causes periodic fluctuations, and so on.

In addition to Keynesianism, monetarism and rational expectation school also put forward their own business cycle theories. Monetarists emphasize the role of monetary factors. Explain the economic cycle from the influence of the change of money quantity on the economy. Rational expectation school emphasizes that expectation error is the cause of economic cycle. In addition, radical political economy, neo-liberals, etc. Put forward the theory of economic cycle.

Although there are many differences between these business cycle theories, there are two things in common. The first is to emphasize endogenous factors, that is, the key role of economic factors in causing economic cycles. Even if exogenous factors bring shocks to the economy, these exogenous factors can only play a role through endogenous factors. In this sense, modern business cycle theory is endogenous business cycle theory. Secondly, it emphasizes the inevitability of economic cycle in market economy.

In the third quarter multiplier-acceleration principle

In modern business cycle theory, the business cycle theory of multiplier-acceleration principle interaction is the most important one, which is introduced here.

First, the principle of acceleration

The acceleration principle is an important supplement and development of Keynes's successor to Keynes's investment theory. They believe that investment is the main factor affecting the fluctuation of economic cycle, but Keynes only considered the impact of investment on income and employment, and did not further consider what impact it would have on investment when income and employment increased. Hansen, an important representative of the post-Keynesian mainstream economics school, believes that investment growth will lead to an increase in total income or total supply through multipliers, which will lead to an increase in consumption and an increase in the number of consumer goods will lead to an increase in investment. This kind of investment caused by income changes is "induced investment". Hansen pointed out that not only that, but also the growth rate of this kind of investment is faster than the growth rate of total income or total supply. An increase in income or consumer demand will inevitably lead to a multiple increase in investment, while a decrease in income or consumer demand will inevitably lead to a multiple decrease in investment. This is the meaning of the so-called "acceleration principle".

Obviously, in the national economy, investment and national income are interactive. Multiplier principle explains the influence of investment change on national income change, and acceleration principle explains the influence of national income change on investment change. Therefore, the acceleration principle is a theory that proves that investment depends on the rate of change of national income (or output).

Modern western economists use this interweaving effect of multiplier and accelerator to explain the phenomenon of economic cycle. Of course, this is just one of many explanations for the economic cycle.