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First, this chapter discusses to what extent financialisation is a recurring phenomenon. The historical evidence shows that episodes of rapid financialisation have analogies and differences and that they alternate with periods of slower, sometimes receding, financialisation. This begs the question whether the fluctuations of financialisation occurred around a trend or not. This chapter argues that we may identify a secular tendency of increasing financialisation. The progressive steps of financialisation have a common root in flexibility-enhancing innovations. These innovations aim to increase the agents’ flexibility of choice as this improves their expected returns. The final part of the chapter investigates the pros and cons of the process of financialisation from the point of view of sustainability.

The introductive chapter aims to clarify the approach adopted in the book. First, it emphasises its link with the approach of historical economics, as practised by Kindleberger. Differently from Kindleberger, however, the qualitative model worked out in this book aims to focus on the intertwined evolution of economics and economic policy. This chapter emphasises the crucial role played in scientific research by the stage of interpretation as crucial bridge between theory and empirical evidence. The case study of the Phillips curve confirms the crucial role of the investigator’s vision in scientific research. Three visions of the nexus between growth and development are then clarified. The vision adopted by this book focuses on a comprehensive vision of sustainable development and a suggested definition of development trajectory.

This chapter aims to clarify the relationship between the surge of environmental policy started in the early 1970s and the surge of neoliberal policy strategy started in the early 1980s. The surge of environmental policy began under the pressure of the public opinion, but entered soon in conflict with the neoliberal approach. This produced a shift from the prevailing use of command-and-control policy instruments to a systematic use of market-based instruments. The latter were unable to interrupt the trend towards increasing environmental unsustainability, particularly in the energy system. This chapter argues that policy makers may find a way out from this unsustainable trajectory only by implementing a sustainable development model based on a modified technological paradigm.

This chapter argues that the recent global crisis is the direct consequence of a development paradigm that is unsustainable from the economic, financial, social, and environmental viewpoints. Such a paradigm became progressively dominant since the late 1970s when the neoliberal policy strategy started to become hegemonic at the world level.

This chapter provides some necessary background for the arguments developed in the book. First comes a preliminary discussion of the basic concepts underlying the arguments, beginning with the concept of freedom. A critical scrutiny of the concept of free market follows. A brief reconstruction of the evolution of economic liberalism is provided with the aim of clarifying the meanings attached to its main varieties. In particular, a rigorous definition of the controversial concept of neoliberalism is suggested. This leads to a discussion of the misleading conception of the relationship between state and market as a zero-sum game. The concluding remarks emphasise that the evolution of capitalism has produced a growing contradiction between democracy and a narrow view of freedom centred on negative freedom.

This chapter investigates causes and consequences of the second surge of financialisation after the Industrial Revolution. The analysis starts from the main changes in finance theory occurred since the early 1970s that provided the foundations for a new policy strategy in finance of neoliberal inspiration. The implementation of the latter produced far-reaching structural transformations in finance that changed the way in which the economic system, not just the financial system, behaves. The analysis of the genesis and the consequences of shadow banking follow. The focus shifts first to a critical discussion of the reform proposals for the shadow banking system and then for the entire financial system. The concluding remarks discuss causes and implications of the delusion of self-regulation in finance in the neoliberal era.

This chapter examines the main causes, the evolution, the principal consequences, and the policy implications of globalisation. The analysis focuses on its articulation in two surges of globalisation divided by an intermediate period of de-globalisation. The specific features of the First and Second Globalisations are spelled out by reconstructing the co-evolution of history of facts and history of economic analysis (pure theory of free trade). A discussion follows on the main arguments in favour or against the process of globalisation. The controversial issue of cross-country mobility of production factors is then briefly examined. The final remarks advocate a cautious attitude towards free trade, keeping in mind that the freedom of people should always be the ultimate priority.

This paper argues that the current global crisis is the direct consequence of a development model that is unsustainable from the financial, economic, social and environmental points of view. Such a model has become progressively dominant since the late 1970s when the neoliberal policy strategy started to become hegemonic. The new policy regime fostered the recent process of globalisation and financialisation, leading to a perverse interaction between the main dimensions of sustainability originating and reinforcing the Great Recession. The crisis, in its turn, worsened many crucial sustainability indicators, generating a vicious circle that might last for a long time. The need for a new sustainability-based economic paradigm is confirmed by the observed gap between the GDP growth indicators and the well-being of individuals and by the nature and requirements of the existing technological trajectory. The paper concludes that we urgently need a radical revision of the current development model towards a more sustainable direction to find a durable escape from the present crisis and start up a more satisfactory development trajectory.

Kalecki’s ‘Political Aspects of Full Employment’ (Kalecki, 1943)1 is a recog- nised masterpiece that is still widely quoted by economists of different orientation (a significant recent example maybe found in Krugman, 2012: pp. 94–96 and 206). Its insights are still useful to clarify and understand many crucial issues lying on the border between macroeconomics, poli- tics and macroeconomic policy. In this chapter we intend to reconsider his essay from the specular point of view of persisting structural (or invol- untary) unemployment as experienced in the last three great crises that have upset developed countries in the last century: the Great Depression of the 1930s, the Great Stagflation of the 1970s and the Great Recession which started in 2007. Kalecki’s insights on full employment economies were prompted by the Great Depression and the scientific, policy and political reactions to it, but succeeded in capturing a few crucial structural features of contemporary capitalism that may also shed light on what happened afterwards. In this chapter, we argue that in particular they help us to understand better not only the Great Depression as analysed by Kalecki himself, but also the Great Stagflation as has long been argued (for example by Robinson, 1976), and — as we are going to argue — the ongoing deep crisis often called Great Recession.

The Treatise on Probability (Keynes, 1973a [1921]; henceforth TP), published in 1921, is a crucial reference to understanding in depth the General Theory (Keynes, 1973b [1936]; henceforth GT) published a few years later (1936). This nexus has been neglected or downplayed for many decades. Only recently has its importance been fully recognized (among the early contributions we mention Carabelli, 1988, and O’Donnell, 1989). However, its importance and scope remain quite controversial.

In the General Theory (1936; henceforth GT), Keynes conflated the long and variegated tradition of mainstream economists since Adam Smith into a single category: the “classics”.1 This extreme simplification has never been accepted by Keynes’s critics or most of his followers, as this wide and apparently indiscriminate category blurs fundamental distinctions between different pre-Keynesian schools of thought. In particular it even blurs the basic and widely held distinction between the classical economists, in the usual meaning of proponents of a labour theory of value (such as Smith, Ricardo and Mill), and the neoclassical economists who supported the marginal utility theory of value (as Marshall, Walras and Pareto). Keynes was of course fully aware of this and other crucial distinctions and his decision to ignore them in the GT was inspired by the desire to stress something crucial that he believed was shared by mainstream economists since Adam Smith. The common thread emphasised by Keynes in the “classical” tradition may be summarised by the following propositions: i) In a perfect-competition market equilibrium, the allocation of resources is optimal and social welfare is maximised (the so-called invisible hand argument); ii) A capitalist market economy is able to self-regulate itself in the sense that it recovers promptly equilibrium whenever it is displaced from it; iii) In principle, the state should therefore avoid interfering with the spontaneous operation of the market; iv) There are limits to markets that may distort the allocation of resources and require motivated and circumscribed public intervention to allow them to do their job; v) In a competitive market economy the possibility of macroeconomic disequilibrium between aggregate demand and supply is excluded by the principle that James Mill and David Ricardo called “Say’s law”.

Although Minsky’s FIH has been discussed and extended by many scholars since its inception, it is not yet a full-fledged theory as a precise specification of the relationship between some of the crucial variables is still missing or remains largely implicit (a critical survey of much of the literature may be found in Tymoigne, 2006). For that reason Minsky has been often accused of ‘implicit theorising’ (see in particular Tobin, 1989). In this view the theoretical axioms are not clearly spelled out and their implications for explanation and prediction are insufficiently argued (Toporowski, 2005, 2008). For that reason most academic economists dismissed the FIH, although a few high-level practitioners continued to consider it quite relevant for their choices. In our opinion this is a non sequitur. We have to take seriously the criticism of implicit theorising but from it we should draw conclusions quite different from those of many Minsky’s critics. Implicit theorising is typical of new revolutionary theories (in the sense of Kuhn, 1970).

Acknowledgements Contributors Introduction by the Editors Whose Keynes? R.Backhouse & B.Bateman The General Theory in Keynes's Biographies M.Marcuzzo The Legacy of Keynes as a Public Intellectual S.Kasper Mr. Keynes and the 'Liberals': A Suggested Interpretation A.Vercelli Corporatism and Keynes: His Views on Growth E.Phelps Keynes, Art and Aesthetics G.Dostaler Keynes and the Social Sciences: Contributions Outside of Economics, with Applications to Economic Anthropology and Comparative Systems M.Forstater Keynes's Enduring Legacy R.Cooper The Principle of Effective Demand: The Key to Understanding the General Theory C.Rogers Getting Rid of Keynes? A Reflection on the Recent History of Macroeconomics M.Vroey Aggregate Demand, Employment and Equilibrium with Marginal Productivity: Keynesian Adjustment in the Craft Economy E.Nell Keynes's Approach to Money: What Can Be Recovered? L.Randall Wray Keynes's Revolutionary and 'Serious' Monetary Theory P.Davidson Was There a (Methodological) Keynesian Revolution? S.Dow What Keynesian Revolution? A Reconsideration Seventy Years After The General Theory R.Dimand Index

In the first part of this chapter we intend to give the basic definitions of globalization and sustainable development as well as some historical background that we believe essential for a full understanding of what we are going to say in the sequel. In the second part of the chapter we proceed to outline a preview of a few crucial arguments developed in the following chapters. In the third part we explicit the theoretical foundations underlying our arguments.

The argument we have developed in the preceding chapters was focused on the history of selected economic facts concerning the process of globalization and its effects on the sustainability of development. History of facts, however, is strictly linked to history of ideas. Our topic is not an exception. On the contrary, in this case the link is particularly tight, as the evolution of international markets proceeded in parallel with the evolution of liberalism. The latter progressively shaped the attitude towards the process of liberalization of markets, while the consequences of this ever-changing historical process modified the trend of liberal ideas. We cannot thus understand the evolution of globalization without grasping its interaction with the evolution of liberalism. As a premise to this analysis we intend to sketch in this chapter a cursory history of economic liberalism. Its evolution had a crucial impact on the process of globalization and on the sustainability of world development, as it affected the prevailing view on the role of free markets, on the liberalization of domestic and international exchanges, and on the opportunity of state interventions in the economy.

Globalization is an evolutionary process that modifies its structural features with time. Although structural change is generally slow and steady, sometimes it undergoes sharp accelerations. These periods of structural break permit a conventional, but not altogether arbitrary, subdivision of the process of globalization in well-defined periods. Each period shares a few common features with the preceding periods but is characterized by distinctive features that mark a discontinuity with the past. Of course the subdivision in periods may be more or less fine according to the analytic and policy purposes.

In this chapter we intend to discuss to what extent it is possible to identify specific causal mechanisms that connect the process of globalization to that of global environmental deterioration.

The current system of energy production, distribution and consumption (henceforth energy system) has many serious weaknesses: on the one hand, it is a crucial determinant of the undergoing process of global warming, on the other hand, it is very vulnerable from the security and economic point of view as the effective availability of its main energy sources and their expected prices are highly uncertain. There is wide agreement on the fact that the age of fossil fuels is bound to decline during this century, progressively giving way to a different energy system based on alternative energy sources. Opinion, however, is quite divided on the amount of fossil fuels reserves, on the characteristics that the new energy system should have as well as on which economic, environmental and energy policies should guide the pace of the transition process.

In this chapter we intend to analyze in some more detail the impact of globalization on within-country inequality. Income distribution became more unequal after liberalization in four large countries that account by themselves for much of the world population, namely China, India, Indonesia and Russia (Lindert and Williamson, 2003). Inequality increased mainly in globalizing countries with large regions cut off from the globalization process, such as rural and hinterland China or rural India. In some cases access to trade reforms and benefits was limited to an extremely small minority, as in Russia where only a few oligarchs took part in the internationalization process (Flemming and Micklewright, 2000). These observations suggest that the differential access to the process of globalization largely contributed to increasing inequality.

The process of globalization affects more and more the life quality of people around the world. In particular, it impinges in different ways upon their health that is the most revealing single proxy of life quality. The health of people affects in its turn the demographic and economic growth of nations as well as their sustainability. Notwithstanding the fundamental importance of this complex network of interactions, however, the nexus between globalization, sustainable development and health has been so far insufficiently analyzed.48

As we have emphasized in the introduction, about globalization we cannot say anything sensible in general terms. The characteristics of globalization and its impact on the economy depend on the period, the country, the issue analyzed and the approach adopted. In particular, we argued that the impact of globalization on the process of development and its sustainability is potentially beneficial but the benefits may be caught only under well-specified conditions. If one or more of these conditions are absent, the impact of globalization on development may be negative or, otherwise, positive in the short term but unsustainable.

Although standard economic theory is based on methodological individualism, this does not imply that individuals play a crucial role in economic models. On the contrary, in such a theory individuals are deprived of authentic subjective features and play no significant role as genuine subjects. The so-called homo economicus is characterized by given preferences that are conceived as exogenous and invariant over time. Therefore, the genuine psychological features of an economic agent do not matter.

Concepts of causality have played an important role in economics since the early fifties. They have been involved in many theoretical and methodological debates as well as in the appraisal of alternative theories and models.