Katsuhito Iwai - Biography - Contributions


Katsuhito Iwai is known to have integrated Knut Wicksell's theory of cumulative process and J. M. Keynes' theory of effective demand.He has demonstrated that, if, in a monetary economy, prices and wages are flexible, a deviation from equilibrium inevitably produces firms' expectational errors and starts a dynamic process that drives prices and wages cumulatively away from equilibrium. He has then argued in opposition to the neoclassical view of the self-regulating nature of laissez-faire market mechanism, that what stabilizes the monetary economy is the inflexibility of money wages and that an equilibrium it gravitates to almost never achieves full-employment. He has proven that the trade-off between unemployment and inflation never ceases to exist no matter how long the time span.

Katsuhito Iwai is often cited for his formulation of a bootstrap theory of money. Everybody uses money as money, Iwai writes, because everybody else uses money as money. He has offered proof, in his search-theoretic model of decentralized exchanges, that, to sustain itself as an equilibrium, the monetary system requires no "real" conditions.

Iwai is credited with constructing mathematical models of Schumpeterian evolutionary processes that describe how large numbers of firms interact with one another, by competing to innovate, trying to imitate and struggling to grow. Over a long span of time, Iwai argues, what the economy approaches is not a neoclassical equilibrium of uniform technology, but at best a statistical equilibrium of technological disequilibria. Profits in excess of normal rate, therefore, never vanish from the economy.

Iwai has also built a new theory of the corporation and of corporate governance. According to Iwai's famed characterization, business corporation is an entity consisting of two-tier ownership relations. The shareholders own the corporation as a legal thing, and the corporation as a legal person owns the corporate assets in turn. This person-thing duality of the corporation, Iwai states, is behind the age-old controversy over what the essence of corporate personality is. The person-thing duality of the corporation also causes what we observe among the contemporary advanced capitalist economies around the world in terms of their highly varied corporate structures.

In light of these theorizations, Iwai has revived the traditional principle of corporate governance where the managers' fiduciary duties toward the corporation serve as its very foundation. In recent years, Iwai has been known to be involved in his attempts at developing a non-contractual theory of fiduciary law.

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