Jamie Galbraith writes something that I snse is profound and important but that I cannot quite grasp:
Invasion of the Name Snatchers | TPMCafe: What is interesting about the recent change in the mainstream is that... you can no longer reliably cite mainstream economists as defenders of arch-reactionary political positions. They are not necessarily against minimum wages, or regulation, or full employment. But what are they for? Above all, they are for an economics that remains fundamentally centered on the concept of markets, but now conceding, rather than denying, market imperfections.
Keynes' General Theory is not centered on markets. It is, rather, centered on the elements of the national income accounts... and on the working of the financial system. My father's major work of theory, The New Industrial State, is centered on organizations, and not on markets. For this reason, these works remain deeply subversive of the orthodox project. For this reason, they are largely excluded from the orthodox curriculum. Meanwhile, students and bystanders are told that the "best elements" have been absorbed into the mainstream. Don't believe it.
The New Industrial State is centered on organizations. But I don't think the General Theory of Employment, Interest, and Money is centered on the NIPA in the same way. There are lots of markets in the General Theory--loanable funds and liquidity preference and the money market, the state of long-term expectation and the stock market, unemployment and the labor market, demand determination and the goods market. But they don't equilibrate in the standard classical way. The interest rate that is supposed to guide the flow of loanable funds is instead set by the quantity of money and momentary liquidity preference. The stock market that is supposed to assess the long-term value of investment is instead a game of musical chairs. And so forth.
I had hopes thirty years ago that evolutionary game theory and related ideas could be used to reformulate ideas in the New Industrial State and the General Theory in ways that would have more rhetorical force within economics. Building on Larry Summers's key insights that markets are dominated not by the rational but by the wealthy, that rational individuals maximize expected utility while wealthy individuals maximize expected wealth, and that risk drives a wedge between those two allowed us to achieve some success in mathing-up some ideas in the "State of Long-Term Expectation" chapter of the General Theory:
J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Noise Trader Risk in Financial Markets," Journal of Political Economy 98: 4 (August 1990), pp. 703-738 http://www.j-bradford-delong.net/movable_type/archives/000603.html
But I was never able to get any farther in that research program.