Reconstruction of Macroeconomics: Methods of Statistical Physics, and Keynes' Principle of Effective Demand

This book explains how standard micro-founded macroeconomics is misguided and proposes an alternative method based on statistical physics. The Great Recession following the bankruptcy of Lehman Brothers in September 2015 amply demonstrated that mainstream micro-founded macroeconomics was in trouble. The new approach advanced in this book reasonably explains important macro-problems such as employment, business cycles, growth, and inflation/deflation. The key concept is demand failures, which modern micro-founded macroeconomics has ignored.

“It (Chapter 3) captures analytically a good part of the intuition that underlies the Keynesian economics of people like Tobin and me.”

Robert Solow, Emeritus Institute Professor of Economics, Massachusetts Institute of Technology, Nobel Laureate in Economics, 1987

“Professor Hiroshi Yoshikawa provides a unique synthesis of statistical physics and macro-economic theory in order to confront the dismal failure in economics and in finance to understand how an economy or a financial market works, given the heterogeneous decision making of many different individual interacting actors. Economics has failed in this regard with the naive and often misleading concept of “representative agents.” The author presents many insights on the historical development, concepts, and errors made by the most illustrious economists in the past. This book should be essential readings for any economics students as well as academic researchers and policy makers, who should learn to bring back good-sense thinking in their impactful decisions.”

Didier Sornette, Professor on the Chair of Entrepreneurial Risks at the Swiss Federal Institute of Technology Zurich (ETH Zurich)

Hiroshi Yoshikawa is professor emeritus at the University of Tokyo and honorary president of the Policy Research Institute, Ministry of Finance, Japan. His area of expertise is macroeconomics and the Japanese economy. He obtained a B.A. in economics from the University of Tokyo in 1974 and a Ph.D. in economics at Yale University in 1978. His Ph.D. advisor was the late James Tobin. Professor Yoshikawa’s key publications include Macroeconomics and the Japanese Economy (Oxford University Press 1995), Reconstructing Macroeconomics: A Perspective from Statistical Physics and Combinatorial Stochastic Processes (Cambridge University Press 2007), with Masanao Aoki; Macro-Econophysics (Cambridge University Press 2017), with Hideaki Aoyama, Yoshi Fujiwara, Yuichi Ikeda, Hiroshi Iyetomi, and Wataru Souma; and Complexity, Heterogeneity, and the Methods of Statistical Physics in Economics (Springer 2020), with Hideaki Aoyama andYuji Aruka. Professor Yoshikawa was awarded the Medal with Purple Ribbon from the Japanese government in 2010.