Beyond "austerity vs. Expansion": Elements for a structural theory of liquidity policy

This paper argues that a conceptual shift is necessary in order to provide effective guidance to short- and medium-term stabilization and growth.policy. The paper emphasizes the need to overcome the micro-macro dichotomy, because it is only when one considers intermediate levels of aggregation, such as stages of production within each industrial sector and their interdependence across sectors, that the connection between liquidity and industry becomes evident. The paper therefore draws attention to the structural theory of economic fluctuations and crises formulated at the turn of the twentieth century. We maintain that this theory provides essential building blocks for understanding the differentiated reaction patterns that characterize industrial economies facing shocks, be they externally or internally engendered.The paper first lays the groundwork for the subsequent analysis by discussing intermediate levels of aggregation and by outlining the function of sectoral interdependencies as the generating mechanism of macroeconomic relationships. Sectoral interdependencies and the time-structure of production provide the appropriate conceptual framework for analyzing medium-term dynamics under conditions of different degrees of persistence between different parts of the economic system.In particular, the paper discusses Albert Aftalion’s structural theory of medium-term dynamics as a fruitful starting point for exploring synchronization requirements when different degrees of durability or persistence involve different speeds of change between stages of production as well as between industrial sectors. The paper closes by examining conditions for liquidity policies aimed at stabilization and growth in industrial economies, which are characterized by significant asymmetries between the time profiles of interdependent activities.