Editing Business cycle (section)

=== Exogenous vs. endogenous ===
Within economics, it has been debated as to whether or not the fluctuations of a business cycle are attributable to external (exogenous) versus internal (endogenous) causes. In the first case shocks are stochastic, in the second case shocks are deterministically chaotic and embedded in the economic system.<ref>{{cite journal |last1=Orlando |first1=Giuseppe |last2=Zimatore |first2=Giovanna |title=Business cycle modeling between financial crises and black swans: Ornstein–Uhlenbeck stochastic process vs Kaldor deterministic chaotic model |journal=Chaos: An Interdisciplinary Journal of Nonlinear Science |date=August 2020 |volume=30 |issue=8 |pages=083129 |doi=10.1063/5.0015916|pmid=32872798 |bibcode=2020Chaos..30h3129O |s2cid=235909725 }}</ref> The classical school (now neo-classical) argues for exogenous causes and the [[underconsumptionist]] (now Keynesian) school argues for endogenous causes. These may also broadly be classed as [[Supply-side economics|"supply-side"]] and [[Demand-side economics|"demand-side"]] explanations: supply-side explanations may be styled, following [[Say's law]], as arguing that "[[supply creates its own demand]]", while demand-side explanations argue that [[effective demand]] may fall short of supply, yielding a recession or depression.

This debate has important policy consequences: proponents of exogenous causes of crises such as neoclassicals largely argue for minimal government policy or regulation ([[laissez faire]]), as absent these external shocks, the market functions, while proponents of endogenous causes of crises such as Keynesians largely argue for larger government policy and regulation, as absent regulation, the market will move from crisis to crisis. This division is not absolute – some classicals (including Say) argued for government policy to mitigate the damage of economic cycles, despite believing in external causes, while [[Austrian School]] economists argue against government involvement as only worsening crises, despite believing in internal causes.

The view of the economic cycle as caused exogenously dates to Say's law, and much debate on endogeneity or exogeneity of causes of the economic cycle is framed in terms of refuting or supporting Say's law; this is also referred to as the "[[general glut]]" (supply in relation to demand) debate.

Until the [[Keynesian Revolution]] in mainstream economics in the wake of the [[Great Depression]], classical and neoclassical explanations (exogenous causes) were the mainstream explanation of economic cycles; following the Keynesian revolution, neoclassical macroeconomics was largely rejected. There has been some resurgence of neoclassical approaches in the form of [[real business cycle]] (RBC) theory.  The debate between Keynesians and neo-classical advocates was reawakened following the recession of 2007.

Mainstream economists working in the [[neoclassical economics|neoclassical]] tradition, as opposed to the Keynesian tradition, have usually viewed the departures of the harmonic working of the market economy as due to exogenous influences, such as the State or its regulations, labor unions, business monopolies, or shocks due to technology or natural causes.

Contrarily, in the heterodox tradition of [[Jean Charles Léonard de Sismondi]], [[Clément Juglar]], and [[Crisis theory|Marx]] the recurrent upturns and downturns of the market system are an endogenous characteristic of it.<ref>{{cite book |last=Morgan |first=Mary S. |author-link=Mary S. Morgan |title=The History of Econometric Ideas |location=New York |publisher=Cambridge University Press |year=1990 |isbn=978-0521373982 |pages=15–130 |url=https://books.google.com/books?id=iUpDzJM9lq0C&pg=PA15 }}</ref>

The 19th-century school of under consumptionism also posited endogenous causes for the business cycle, notably the [[paradox of thrift]], and today this previously heterodox school has entered the mainstream in the form of [[Keynesian economics]] via the Keynesian revolution.