A key lesson of the financial crisis 2007-09 is that the Bagehot Rule, “lend freely but at a high rate,” needs to be updated for the emerging market-based credit system. A modern rule is suggested: Markets, not Banks; Outside spread, not Inside spread; Core, not Periphery.

The class struggle is formalized as a differential game in a strictly supply-side model, an approach that synthesizes the models of Lancaster and Goodwin. Four different steady-state equilibria are derived, each corresponding to different assumptions about the degree to which each class is organized to promote its own interests. In particular, the Goodwin growth cycle is shown to emerge from a world characterized by unorganized capitalists and workers, in which individuals ignore the effects of their own actions on economywide variables. More relevant for discussion of modern capitalism are the hierarchical equilibria, especially the codetermination equilibrium in which the existence of a full-employment equilibrium turns out to be problematic. Finally, comparative-statics results suggest that the incentives for technological change differ widely among the four regimes.

Beyond DSGE Models: Toward an Empirically Based Macroeconomics by David Colander, Peter Howitt, Alan Kirman, Axel Leijonhufvud and Perry Mehrling. Published in volume 98, issue 2, pages 236-40 of American Economic Review, May 2008