Flaws of Modern Economic Theory: The Origins of the
Contemporary Financial - Economic Crisis
Ezra Davar
Abstract
The Paper shows how fundamental flaws in the modern economic theory are a central part in the formation
of financial bubbles: 1) The Keynesian multiplayer is based on the substitution of the cause (the national income)
for the effect (investment); which yields inadequate results. 2) Modern general equilibrium theory is
based on the following assumptions: a) modern version of free goods conception; b) “Walras’ Law”; This is
realistically absurd, as according to these assumptions, the equilibrium price of some goods and services
might be equal zero. 3) Modern money theory assumes that fiat money is the only type of money, which is
erroneous.
Keywords: Flaws of Modern Economic Theory, Keynes’s Multiplier, Modern General Equilibrium Theory,
Modern Money Theory, Smith, Walras, Keynes