A Fundamental Cause of Economic Crisis

The purpose of this paper is to study a fundamental cause of the economic crisis which suffers the current capitalism economy. The basic approach we adopt is as follows. Firstly, we show that the capitalism economy cannot largely deviate from the balance which is defined by natural economy. Our attentions are focused on the balance between the real economic sector which produces GDP and the monetary sector which invests capital to the production of GDP. For the balance to be kept, there exists a rigorous range of the interest rate which the monetary sector can require from the real economic sector. The fundamental cause of economic crisis is the large deviation from this balance. Secondly, the capitalism economy is constructed by the economic agents who necessary accomplish their decision makings. Therefore, we construct our model by macro- economic game. Players of the game are the agents who are selected by the real economic sector and the monetary sector. Thirdly, we show that the deviation from the solution of the game is considered as the one from natural economy. Therefore, we conclude that the large deviation from the solution of the game is a fundamental cause of economic crisis. The game is defined by the macro-economic differential game with infinite horizon. In the usual cases, the solution of the game is defined by the stable steady point, or an equilibrium. However, our game has no stable steady point. Therefore, it is shown that the aid of financial policy is necessary for the game to have its solution. The aid is defined by controlling the distribution rate of GDP to the monetary sector. The financial policy is defined as the policy rule. This distribution rate has the rigorous restriction for the game to have its solution. It is shown that the solution of the game has the character of natural economy. The policy rule plays an important role to keep the balance of the economy and hence to prevent the economy from deviate from natural economy. In the final section, we investigate the actual transitions of distribution rate in USA, Euro area and Japan and analyze the fundamental cause of financial crisis.