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Summary: The 2008 international financial crisis triggered retrospection on both theory and policy, reaching a macroeconomic consensus that the financial system plays an important role in the macro economy and macroeconomic theory must be restructured to incorporate endogenous financial factors. Reflecting on the inherent flaws of traditional mainstream economics, this paper puts forward a "macrofinance" proposition as a new paradigm for macro financial analysis. As a scientific methodology based on systematic logic, the major feature of the macrofinance framework is that we must analyze the financial system as a core part of a complete and endogenous analytical framework, instead of only focusing on the money or credit. The goal of "macrofinance" is to return to scientific economic methodologies by analyzing the inherent laws of modern financial systems to set up a comprehensive theoretical framework that unifies the financial sector with the real economy and combines theory and policy practice.
Key words: Macrofinance, Financial system, Real economy, Methodology.
JEL: E52, E58, E61.
In 1906, Alfred Marshall famously wrote about his skepticism regarding the use of mathematics in economics (Stanley L. Brue 1993, p. 294):
"[I had] a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics; and I went more and more on the rules: (1) use mathematics as a shorthand language, rather than an engine of inquiry; (2) keep to them till you have done; (3) translate into English; (4) then illustrate by examples that are important in real life; (5) burn the mathematics; (6) if you can't succeed in (4), burn (3). This last I did often. I don't mind the mathematics, it's useful and necessary, but it's too bad the history of economic thought is no longer required or even offered in many graduate and undergraduate programs. That's a loss."
Marshall is not alone. Here are some other poignant points made by giants in our field:
"Too large a proportion of recent 'mathematical' economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols" (John Maynard Keynes...