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CHAPTER It

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the system ai if    it ware    a closed system.    In other words,

according to    such    modela,    we could have had    exactly the same

performance* if our oountrles had contlnued to be only moderately dependant upon external trade and relatlonahips, as it used to be untll the Slxtles..

The second lmportant common feature is the common focusing of attentlon    upon    the causes of inflation.    Unemp1oyment, in

all aodel8,    is something    which happens to    exlst only In so

far as something wrong •• happens with regard to price eąuiłibrium. For the neo-monetarists the disturbing factor is given by an excess of money, for which the State is the direct responslbłe; for the neo-Keynesians the 'wrong variable' is given by the level of nominał wages (or of the nominał wages dynamice), which is too high. But in both cases, once the price equillbrlum conditions are broken, unemployment will resułt as a consequence of it.

The third common feature is given by the common a I cr oeconom i c spec 1 f 1 ca 11 nn of all t.heae modełs, which pivot on the hypot.heala of d 1 m 1 n 1 ah 1 ng ' ret.urna t.o scalę. Thla point. 1a c r u dal;    ao oruclal    t.hat., ahould one wlt.hdraw the

decreaalng retnrna hypot.heala, all of the main reault.a of the ahove ment.łoneri modela would fali to hołd.

Tn o nr 1986 Report we dlacnaaed t.hla point. at. lengt.h; t.here we ahowed that. Keynes hlmaelf accepted aa an axiom auch hypot.heala hut. t.hat. h1a model, and ahove all h1a 'ylalon of the world', d1d not depend on 1t.. Tn fact t.he H Icka łan yeraion of Keynea'a    model, and    all the aubaequent. fłx-prłce

apec 1 f 1 ca 1.1 ona , dld not. depend on that. hypot.heala. Tt. waa t.hla, 1 nc 1 dent.a 1 1 y , which allowed t.o f1t. 1n auch modela morę up-t.o-dat.e theorlea of product.łon and ollgopollat.lc hehav1our, which not. only 1nt.egrat.ed t.he t.heory hut. cont.r1hut.ed t.o make the whole bulldlng morę real Int.lc.

Aa we not.lced aeveral Times, all the t.heorles which at t.he moment domlnat.e the academlc arena have ; gone back t.o the nłnet.let.h century m 1 croeconom 1 c aaaumpt. 1 ona . The hypot.heala of d1m1n1ah1ng ret.nrna waa borrowed by t.he agr 1 cii 1 t.ura 1 proceaa of product. 1on, t.o which 1t. applied becauae of t.he ex1at.ence of dlfferent land fert.lllt. lea. Already t.he claaalcal econoalst. a (and Ricardo 1a cert.alnly t.he most. repreaent.at.1ve of T.hen from t.hla point. of v1ew) aaaumed t.hat. Induatrlal productlon proceaaea had conat.ant. prodnct. 1 v 1 t.y wlt.h reapect. t.o t.he acale of product. łon. The nnderlyłng conałrieratlon waa t.hat., ahould t.he product. 1v1t.y hegln t.o decllne beyond a cert.ałn acale of the plant, a, addłt.łonal plan ta would be eona t ructed, słnee In łnduatry , dlfferent.ly from agr 1 cn 1 turę , product.1ve capacłt.y could be reproduced, at t.he aawe condłt. łona, włt.hout. any limit.; Induat.rlal proceaaea can be replłcat.ed, whlle land c a n n o t..

The laat. common feature ła given hy t.he neglect. for t.he numeroua proceaaea of łnnnvat.1on and tran a forma 1.1 on out.lłned In t.he prev1oua aect. łon; morę In generał auch approachea do not. deal, and are not. endowed to deal, wlt.h t.ruly dynamie phenomena.