A literature review

By the end of the nineteenth century, light had been shed on many different aspects of economic systems. The classic economists understood the advantages of functional organization of labour (Smith), ¹ comparative advantages in production, and trade (Ricardo). Early neoclassic economists added the functioning of price as a result of bargaining power (that is, of supply, demand and market power), including some mathematical theories to explain it (Cournot, Marshall). And some less-orthodox scholars provided powerful insights into the nature of money and value (Marx), the dynamics of social classes and labour organizations (Marx, Veblen) and the nature of informal institutions (Veblen) and many others. ² Growth theory, on the other hand, was still very much neglected. Empirical observation provided evidence for more or less continuous growth of capital and production, and regular cycles in output. In order to construct a more elaborate theory to explain these phenomena, an understanding of the macroeconomic dynamics was necessary. This insight was only achieved with the writings of Keynes in the 1930s (Keynes, 1936).