Cambridge Journal of Economics - recent issues

Socio-economic evolution and Darwinism in Thorstein Veblen: a critical appraisal

Liagouras, G. — Fri, 30 Oct 2009 23:07:48 PDT

The paper questions the idea that a biology-based perspective, and more specifically Darwinian population thinking, constitutes a real alternative for the study of the evolution of social systems. This is done through a critical appraisal of the work of Thorstein Veblen. Even though Veblen's account of the evolution of humankind makes the notion of natural selection practically redundant, his remaining attachment to Darwinism created two other serious tensions for him. First, his attachment to the Darwinian scheme of ‘descent with modification’ kept him from devising a systematic theory of the different socio-economic systems he studied. This shortcoming is more evident in his analysis of capitalism, which not only lacks an elaborated theory but also contradicts his initial evolutionary programme. Second, by postulating that human history is a question of cultural change, Veblen was tempted to conflate social structures, institutions and habits of thought.

A Sraffian critique of the classical notion of centre of gravitation

Dupertuis, M.-S., Sinha, A. — Fri, 30 Oct 2009 23:07:48 PDT

In this paper we use insights from Sraffa's classic, Production of Commodities by Means of Commodities, to argue that the classical notion of ‘centre of gravitation’ is not a sound concept. The market mechanics of labour allocation through price signals and quantity adjustments, given effectual demands, do not lead to a ‘centre of gravitation’. We work out all such possible market mechanisms, including the specific classical case, and show that the ‘centre of gravitation’ is a non-attractive point in all cases.

The revealed preferences of high technology acquirers: An analysis of the innovation characteristics of their targets

Desyllas, P., Hughes, A. — Fri, 30 Oct 2009 23:07:48 PDT

This paper investigates whether acquisitions involving public high technology firms are best understood in terms of acquirers taking over firms with ‘superior’ innovation performance to access their assets, or acquiring firms with ‘inferior’ innovation performance to turn them around. Innovation performance is proxied by R&D-intensity (R&D expenditure over assets), patent-intensity (patents per US$million of assets), i.e. the R&D productivity of a firm's assets, and the patent stock, i.e. the accumulated R&D output. We find substantial overlaps between target and non-acquired firm characteristics. Nevertheless targets have a relatively high R&D-intensity and a large patent stock, which is consistent with acquirers targeting firms with a superior innovation performance. However, these targets have significantly lower pre-acquisition patent-intensity and hence a lower R&D productivity. The targets are also experiencing weak financial performance. Our results are consistent with a selection process in which acquirers seek out firms that have a superior past innovation performance, but that are failing in terms of recent R&D productivity and financial performance. A comparison of the performance of the targets with their acquirers reinforces this conclusion.

Between political economy and postcolonial theory: first encounters

Kayatekin, S. A. — Fri, 30 Oct 2009 23:07:48 PDT

Post-Keynesianism without modernity

Danby, C. — Fri, 30 Oct 2009 23:07:48 PDT

A robust and critical post-Keynesianism can be specified on the basis of time, uncertainty, and the investigation of the institutions that structure material life, without presupposing what those institutions are. This paper criticises the inclusion in influential presentations of the axiomatic foundation of post-Keynesianism of propositions about government and money that presuppose a particular ensemble of institutions. That ensemble corresponds to the ideal-type called modernity. Without modernity post-Keynesianism gains logical parsimony and breadth of application; the paper discusses non-modernist writers in the tradition that includes J. M. Keynes, K. N. Raj, Celso Furtado and Juan Noyola.

Social analysis and the capabilities approach: a limit to Martha Nussbaum's universalist ethics

Charusheela, S. — Fri, 30 Oct 2009 23:07:48 PDT

Postcolonial theorists critique modernist universalisms for legitimating structural power. Responding to these critiques, Martha Nussbaum argues that abandoning universalism leads to ethical relativism. Adapting Amartya Sen's capabilities approach, she has proposed a modified universalism that draws on cross-cultural conversations as a non-ethnocentric basis for universal judgment and intervention. This paper takes as its point of departure Nussbaum's (mis)reading of a critique by Nkiru Nzegwu. Working from that conversational failure, the paper identifies the social analysis Nussbaum deploys as a point of ethnocentric breakdown in her universalist approach.

Economics, postcolonial theory and the problem of culture: institutional analysis and hybridity

Zein-Elabdin, E. O. — Fri, 30 Oct 2009 23:07:48 PDT

Postcolonial theory has not yet made an impact in economics. This may be explained by the different treatment of culture in each field. In postcolonial theory, culture serves as a central analytical category. In economics, despite increased attention in recent history, general approaches to culture continue to underestimate its role in economic behaviour and decision making. Borrowing some insights from postcolonial theory, this paper calls for further attention to culture in economics. It is argued that such a turn improves current understanding of contemporary economic phenomena, and allows subaltern cultures (currently theorised as less developed) to equally participate in the global construction of social meaning and economic well being. It is further argued that incorporating the postcolonial idea of hybridity into the institutional economic approach holds the most promise for theorising contemporary postcolonial economies. This argument is illustrated by examining some hybrid economic patterns within Africa.

Global order and the new economic policy in India: the (post)colonial formation of the small-scale sector

Chakrabarti, A., Chaudhury, A., Cullenberg, S. — Fri, 30 Oct 2009 23:07:48 PDT

Using a class focused Marxist approach, we elucidate the adopted position of Indian small-scale sector as a devalued other within the adopted development paradigm that accords primacy to Capital and West. In the background of this understanding of small-scale sector, we demonstrate how the New Economic Policy in the era of globalization could be theorized as a tool to obtain the (post) colonial hegemony of capital over the small-scale sector.

Ambivalence of class subjectivity: the sharecroppers of the post-bellum southern USA

Kayatekin, S. A. — Fri, 30 Oct 2009 23:07:48 PDT

The paper argues that the economic literature on sharecropping uses a modernist notion of subjectivity that fails to explain the complexity of economic behaviour or the social context in which agency is formed. I look at the case of economic subjectivity of southern sharecropping tenants in the post-bellum USA, using non-determinist Marxist class analysis together with the concept of subjectivity drawing from postcolonial theory, in particular the work of Homi Bhabha. I argue that this alternative approach to economic subjectivity, which posits an ambivalent, or contradictory subjectivity provides us with a better analytical grasp of economic agency and a better explanation of the perpetuation or demise of a productive form such as sharecropping.

The great crash of 2008 and the reform of economics

Hodgson, G. M. — Fri, 30 Oct 2009 23:07:49 PDT

The 2008 economic crash led to remarkable shifts of opinion among world leaders. Does this crisis create favourable conditions for the reform and revitalisation of economics itself—from a subject dominated by mathematical techniques to a discipline more oriented to understanding real-world institutions and actors? And why were warnings of financial collapse not heeded? Recent shortcomings are partly related to the global triumph of market individualist ideology and partly to the exaggerated roles of modelling and quantification. These failures of economics are partly peculiar to the discipline and also a result of other wider institutional and cultural forces.

The Editors would like to thank the following people who have acted as referees during the academic year 2008-2009

Fri, 30 Oct 2009 23:07:49 PDT

Index to Volume 33

Fri, 30 Oct 2009 23:07:49 PDT

Introduction

Sanghera, B., Olsen, W., Lyon, F. — Mon, 24 Aug 2009 12:15:07 PDT

Moral political economy and moral reasoning about rural India: four theoretical schools compared

Olsen, W. — Mon, 24 Aug 2009 12:15:07 PDT

This paper explores a pluralist approach to moral economy in two ways. First, as a review, four major schools of thought on the rental of land in India are described. I focus on their normative and ontic assumptions. Second, noting that none of these schools is value-neutral, a plurality of six complex moral reasoning strategies emerge from this review. The advantage of the social researcher doing an overview of these normative positions is that we can compare and contrast the meta-criteria that are used. The six moral reasoning strategies are a neoliberal growth strategy, a human capabilities approach, a redistribution approach, a transformative approach, a social equality approach, and a Pareto-optimality approach. The study of these six strategies leads toward the conclusion that more research on complex moral reasoning strategies is called for, because combining them rapidly leads to difficulties. Scientific research can provide evidence to underpin and shape the moral reasoning that takes place in real-world dialogues and debates.

Market institutions, trust and norms: exploring moral economies in Nigerian food systems

Lyon, F., Porter, G. — Mon, 24 Aug 2009 12:15:07 PDT

Informal market institutions and small-scale traders are responsible for feeding Nigerian cities. This study analyses a range of economic relationships and institutions that have evolved in the context of inadequate formal institutions such as banks and legal contracts. Through examining both personal relationships and institutional based trust, the paper explores the role of moral norms. Trust is shown to be related to sanctions, information on other parties and a range of norms that are drawn on both calculatively and habitually. The perceived moralities of different forms of institution (such as credit systems, trader associations and commission agents) are also examined.

Moral sentiments and economic practices in Kyrgyzstan: the internal embeddedness of a moral economy

Sanghera, B., Satybaldieva, E. — Mon, 24 Aug 2009 12:15:07 PDT

In The Theory of Moral Sentiments, Adam Smith notes that moral sentiments, emotions and feelings affect economic and social practices. In the literature on social embeddedness of the economy, sentiments and emotions are neglected, and more attention is given to rules, norms and institutions, which are seen as being instrumental in reducing transaction costs and creating social cohesion. By examining the transformation of Kyrgyzstan to a market economy, the authors show how emotions can motivate individuals to pursue ultimate concerns and commitments. Furthermore, it is argued that without moral emotions and institutional safeguards, economic practices and relationships can be distorted.

Input price-input quantity relations and the numeraire

Opocher, A., Steedman, I. — Mon, 24 Aug 2009 12:15:07 PDT

The fact that a competitive agent faces ‘given’ input prices does not necessarily mean that these prices can be completely arbitrary, especially in the long run. An obvious case, but not the only one, is when there are input–output relations among industries. But as soon as long-run input price interrelatedness is taken seriously, the very conception of a downward sloping input demand curve encounters serious difficulties. Although one can always draw an input price–input quantity relation, its main qualitative property—the sign of its slope—is not generally independent of the arbitrary choice of numéraire.

The labour market in a Keynesian economic regime: theoretical debate and empirical findings

Herr, H. — Mon, 24 Aug 2009 12:15:07 PDT

In a Keynesian mode of thinking wages become the nominal anchor for the price level because unit-labour costs in a closed economy represent the most important factor in determining the price level. The second most important driver of price level changes is the exchange rate. A positive economic regime includes nominal wage increases according to trend productivity growth as well as the target inflation rate of the central bank, discretionary monetary policy geared towards growth and anti-cyclical fiscal policy. Since the early 1990s nominal wages in the USA and the UK have followed this wage norm to a large extent. But in Germany, wages have increased below this norm or even decreased, and in Japan this effect has been even more extreme. Overall, while Japan and Germany have suffered from dysfunctional economic regimes leading to low growth, the UK and USA have managed a much more positive interaction between wage development, monetary policy and fiscal policy.

Aggregate demand and the endogeneity of the natural rate of growth: evidence from Latin American economies

Libanio, G. A. — Mon, 24 Aug 2009 12:15:07 PDT

This paper aims to explore the Keynesian idea that aggregate demand matters for economic activity, both in the short and long run. To that extent, it discusses the endogeneity of the natural rate of growth, and presents two empirical exercises: the first one tests for unit roots in output for 12 Latin American countries using panel data. The results suggest that gross domestic product series are non-stationary and therefore shocks (both from supply and demand) have persistent effects in the economy. The second exercise tests the hypothesis of an endogenous natural rate of growth, and suggests that potential output has been influenced by the actual level of economic activity in Latin American countries. This result corroborates the hypothesis that aggregate demand has long-run effects in the economy.

Economics as social engineering? Questioning the performativity thesis

Santos, A. C., Rodrigues, J. — Mon, 24 Aug 2009 12:15:07 PDT

The social engineering ambitions of economics have never been so high. Economists are increasingly invited to construct markets from scratch or to design mechanisms that mimic the market. Science students take these social engineering efforts as evidence for the capacity of economists to make the economy more like its description in economic theories. This paper scrutinises one such viewpoint. It examines Michel Callon's performativity thesis that presents the stronger stance regarding the impact of economics on the economy—economic theory can be made true by construction. It concludes that the research carried out thus far fails to support this thesis. It has shown that economics, understood in a very loose sense, has an active role in market building.

Innovation, structural change and productivity growth: evidence from Italian regions, 1980-2003

Quatraro, F. — Mon, 24 Aug 2009 12:15:07 PDT

This paper develops a Schumpeterian approach to structural change, by grafting the role of business cycles and creative destruction into the growth retardation theory. The context of the empirical analysis is represented by the growth path of 20 Italian regions over the period 1981–2003, in the light of the transition towards the knowledge-based economy. The results strongly support our hypotheses: (i) early-industrialised areas are fully involved in the generalised movement towards the knowledge-based economy; (ii) due to the delayed expansion of manufacturing activities in late-industrialised areas, productivity growth and innovation takes place within manufacturing sectors.

Aggregate capital productivity in the US economy, 1964-2001

Mohun, S. — Mon, 24 Aug 2009 12:15:07 PDT

In the decomposition of the US macroeconomic pre-tax rate of profit as the product of profit share and capital productivity, this paper considers the role of capital productivity over the period 1964–2001. The primary finding is that prior to 1982 capital productivity fell because capital deepening proceeded faster than labour productivity growth, whereas from 1982 to 1997 the opposite occured. If, prior to 1982, the US economy was characterised by Marx-biased technical progress, what requires explanation is why labour productivity continued to grow after 1982 in the absence of sufficient capital deepening. The paper explores various hypotheses, contrasts neoclassical and classical notions of technical change, and investigates the robustness of its results to the productive–unproductive distinction and to accounting for changes in capacity utilisation.

Introduction: the global financial crisis

Blankenburg, S., Palma, J. G. — Wed, 01 Jul 2009 23:03:25 PDT

From global imbalances to global reorganisations

Wade, R. — Wed, 01 Jul 2009 23:03:25 PDT

The world feels itself to be in transition, but to what is unclear. Will the liberal market model retain its normative primacy once some semblance of normality is restored, or will other varieties of capitalism, with a bigger role of the state, acquire more legitimacy? The answer depends partly on one's explanation for the current crisis. This essay argues, first, that global imbalances had too important a role to ignore, in contrast to a mainstream view that focuses on mistakes in monetary policy and financial regulation. It argues, second, that in light of global dynamics, the crisis is likely to become worse by early 2010—which, on the face of it, makes significant reorganisations of capitalism more likely. The third section lays out what should be done to reconfigure capitalism at national and international levels. The final section discusses the political economy of policy reforms in terms of the difficult translation from what should be done to what can be done. The broad conclusion is that in five years from now the liberal market model will have been restored to normative primacy and ‘we must have more globalization’ will again be the elite rallying cry; but the crisis will have left behind sufficient doubts about factual propositions and value priorities that political parties and economists advocating alternatives will have more scope than they have had for the past three decades.

Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'

Crotty, J. — Wed, 01 Jul 2009 23:03:25 PDT

We are in the midst of the worst financial crisis since the Great Depression. This crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s. This evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises. Governments respond to crises with bailouts that allow new expansions to begin. As a result, financial markets have become ever larger and financial crises have become more threatening to society, which forces governments to enact ever larger bailouts. This process culminated in the current global financial crisis, which is so deeply rooted that even unprecedented interventions by affected governments have, thus far, failed to contain it. In this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform.

The limits of central bank policy: economic crisis and the challenge of effective solutions

Morgan, J. — Wed, 01 Jul 2009 23:03:25 PDT

The paper examines the development of central bank policy prior to and during the recent financial crisis. The argument is made that it contained multiple failures that not only generated constraints on adequately identifying and addressing the crisis but also contributed to that crisis. Those failures derived from a combination of theory and institutional practice. Specifically the use of forms of inflationary targeting based on broad adherence to the Taylor rule framework and the use of versions of a Conventional Theoretical Macro Model (CTMM) were both problematic. This was particularly so in the way policy was focused through issues of the primacy of price stability. The institutional arrangements of the central banks were also problematic. The division of labour between the central banks and other regulatory bodies and the limited information available within a liberalised finance system hampered efforts to fully appreciate the gravity of the situation. Partly due to the constraints imposed by the thinking and strategies that had been developed the central banks never got to grips with the fundamental problems of the crisis. Interest rate policy and liquidity provision were undertaken in ways that steadily radicalised the approaches of the banks but always in a way that was event led and always in ways that could not resolve those fundamental problems. The nature of the crisis highlights the importance of transforming the approach and institutional framework of the central banks. Relatedly, it highlights the need for a more Keynesian and heterodox approach to economics within decision making bodies at central banks.

The fat years: the structure and profitability of the US banking sector in the pre-crisis period

Tregenna, F. — Wed, 01 Jul 2009 23:03:25 PDT

Bank profitability in the USA was extremely high in the pre-crisis period, yet this did not prevent the current crisis. It has become clear that these profits were on shaky grounds and also that bank profits were not used to buttress banks’ capital bases. This paper analyses the effects of structure on profitability from 1994 to 2005. Bank-level panel data are used to test the effects of concentration, market power, bank size and operational efficiency on profitability. Efficiency is not found to be a strong determinant of profitability, suggesting that banks’ high profits during this period were not ‘earned’ through efficient performance. Robust evidence is found that concentration increases bank profitability. This holds even when the largest banks are excluded from the sample, suggesting that the relationship between concentration and profitability acts in a generalised structural way and that the higher profits arising from concentration are at the expense of the rest of the economy. The analysis points to various policy implications relevant to the current crisis, in particular in terms of the legitimacy of expectations of the restoration of pre-crisis profit rates and the need for much stronger regulation of the banking sector, especially in terms of the structure of the sector, pricing behaviour and use of profits.

The evolving international monetary system

D'Arista, J. — Wed, 01 Jul 2009 23:03:25 PDT

The global financial and economic crisis has prompted renewed interest in international monetary reform. The key-currency status of the US dollar has been challenged but discussion of what might be reasonable objectives and institutional structures for a new system has not yet broken new ground. Nevertheless, as interest in the issue begins to include policymakers and non-governmental organisations, new proposals are likely to emerge. To assist the process, this paper provides an overview of how the international monetary system has evolved since the inauguration of the gold standard in the late 1800s to provide a context for some of the reform ideas that emerged during and after the discussions at Bretton Woods and some of the proposals that were offered subsequently. It concludes with an outline of three proposals by the author that are intended to expand the debate.

Why don't the bailouts work? Design of a new financial system versus a return to normalcy

Kregel, J. — Wed, 01 Jul 2009 23:03:25 PDT

The innovative support measures introduced by the US Central Bank and Treasury in response to the current crisis to bolster bank balance sheets have had little success in restoring liquidity to financial markets. These policies mirror similar policies employed in the 1930s in the USA and the 1990s in Japan, in both cases with little impact. This paper identifies three policies impacting incomes rather than prices, the assessment of system failure, and proposals for system design that were employed in dealing with prior financial crises. That they have not been introduced in response to the present crisis may explain why current measures have not yet had their intended impact of restoring bank lending to the productive economy.

The crash of the knowledge economy

Pagano, U., Rossi, M. A. — Wed, 01 Jul 2009 23:03:25 PDT

This paper advances the hypothesis that some of the roots of the present crisis are to be found in the present institutions of the knowledge economy. While protectionism is seen as a possible dangerous outcome of the crisis, the extent of protectionism inherent to the strengthening and globalisation of intellectual property rights (IPRs) associated, in particular, with the signing of the Trade-related Aspects of Intellectual Property Rights agreement is not generally perceived as one of its possible causes. Indeed, IPRs have acted as ‘super-tariffs’. They have particularly raised the cost of investments for countries that had neither abundant cheap labour nor high amounts of intellectual property resources. Moreover, IPRs may have later exerted negative effects even on IP-rich firms, as the proliferation of conflicting rights has led firms to increasingly inhibit each other's investments. The resulting investment strike has manifested itself as a saving glut and has mainly affected the USA in a situation aggravated by inadequate regulations. If intellectual monopolies are one of the causes of the crash, the remedies should not only focus on monetary policy, financial regulations or even on standard Keynesian policies. Aggregate demand stimulus should be coupled with policies that decrease the level of intellectual monopolisation of the economy.

A developing country view of the current global crisis: what should not be forgotten and what should be done

Frenkel, R., Rapetti, M. — Wed, 01 Jul 2009 23:03:25 PDT

Macroeconomic theory will surely be affected by the current global crisis. There are signs that some ‘old’ theories and insights will have a comeback. This paper argues that among them economists should not forget the lessons that have been learnt from three decades of several financial crises in developing countries. We emphasise two important lessons. First, preventing crises in developing countries requires not only the regulation of domestic financial systems, but also a consistent set of macroeconomic policies. In particular we stress the need for consistency between the exchange rate rule, the capital account regime and the domestic financial market regulations. Second, financial crises in developing countries tend to worsen both the balance of payments and the fiscal balance. Traditional adjustment policies tend to exacerbate the recessive trends in output and employment. This is just the opposite of what is required and what governments in developed countries are able to do. Developing countries should push for an agenda that helps them deal with these problems.

Latin America and the global financial crisis

Ocampo, J. A. — Wed, 01 Jul 2009 23:03:25 PDT

The current world economic crisis has hit Latin America very hard. Although financial conditions have deteriorated, particularly since September 2008, the financial shock has been less severe than during the two previous crises. Thanks to improvements in external balance sheets, there has been room for counter-cyclical credit and monetary policies. The decision to absorb large capital inflows during the boom as foreign exchange reserves is one of the major sources of the increased room to manoeuvre. However, these strengths have been insufficient in the face of a strong trade shock. The region's economies should therefore seriously think again in the domestic market, with regional integration and active production sector policies as engines of growth.

The costs of 'coupling': the global crisis and the Indian economy

Ghosh, J., Chandrasekhar, C. P. — Wed, 01 Jul 2009 23:03:25 PDT

The view that the Indian economy would be less adversely affected by the global economic crisis because of limited integration and other inherent strengths has proved to be wrong. The economic boom in India that preceded the current downturn was dependent upon greater global integration in three ways: greater reliance on exports particularly of services; increased dependence on capital inflows, especially of the short-term variety; and the role these played in underpinning a domestic credit-fuelled consumption and investment boom. These in turn made the growth process more vulnerable to internally and externally generated crises, as is now becoming clear.

Out of the corridor: Keynes and the crisis

Leijonhufvud, A. — Wed, 01 Jul 2009 23:03:25 PDT

We should learn from Keynes to focus on the macroproblems of our day. Today's problem is the financial crisis and the resulting great recession. Neither the standard Keynesian policies of decades past nor the monetary policy doctrine of recent years provides useful solutions. Dynamic stochastic general equilibrium theory is part of the crisis wreckage, but turning to old or to New Keynesian theory will be of little use. A balance sheet recession requires that policy address the problems in the private sector's capital as well as its income accounts. We need serious theoretical work on problems of system stability using, for example, agent-based methods. Monetary theory needs to develop analysis of processes in which intertemporal budget constraints are violated. Network theory will be useful in that quest.

The current economic crisis: its nature and the course of academic economics

Lawson, T. — Wed, 01 Jul 2009 23:03:25 PDT

The current crisis has triggered significant debate concerning economic theory and policy. Largely absent from this debate is an informed discussion of the methods used by economists in analysing the economy and formulating their proposals. But method matters. Here I argue that current academic research practices need to be transformed before real insight can be achieved. Specifically, I indicate why and how a more grounded framework than that presupposed by current research practices facilitates a potentially more fruitful approach to understanding the crisis.

The double bubble at the turn of the century: technological roots and structural implications

Perez, C. — Wed, 01 Jul 2009 23:03:25 PDT

This paper argues that the two boom and bust episodes of the turn of the century—the internet mania and crash of the 1990s and the easy liquidity boom and bust of the 2000s—are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the ‘credit crunch’ and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences.

The rise and fall of money manager capitalism: a Minskian approach

Wray, L. R. — Wed, 01 Jul 2009 23:03:25 PDT

We are in the midst of a global financial crisis accompanied by a deep and probably long-lasting economic downturn; indeed, some analysts are already calling this the first depression of the post-World War II era. In this article, I argue that this is a systemic crisis—a crisis of what Hyman Minsky called money manager capitalism. I link this to the analyses of Hilferding and Veblen of an earlier period, finance capitalism, and argue that this is, in effect, the second failure of this type of capitalism. The essential characteristics of early finance capitalism are: relatively small government, use of external finance for investment, and growing concentration of economic power in the hands of ‘trusts’—or what we might today call megacorporations with varied interests and diverse affiliations across ‘industry’, ‘finance’ and ‘insurance’. Unlike the first phase, the second phase of finance capitalism took place in the context of a big government, neoconservative model. Minsky's analysis helps us to understand how the New Deal and big government created a paternalistic capitalism after World War II, which favoured high consumption, high employment, greater equality and financial stability; however, that stability was destabilising because it permitted the rise of managed money. Over time, innovation and deregulation increased fragility, which generated increasingly frequent and severe financial crises. While previous crises were resolved quickly enough to prevent ‘it’ (another debt deflation) from happening again, this crisis appears to be sufficiently severe that the very survival of money manager capitalism is thrown into question. The article examines the contributing factors to the current crisis, including the real estate boom and bust, the rise of risky financial instruments such as securitised debts and credit default swaps, the commodities market bubble and the fiscal squeeze. The article concludes with some suggestions concerning the possible outcome of the failure of this form of finance capitalism.

The revenge of the market on the rentiers.: Why neo-liberal reports of the end of history turned out to be premature

Palma, J. G. — Wed, 01 Jul 2009 23:03:25 PDT

Starting from the perspective of heterodox Keynesian–Minskyian–Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of appropriate regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the ‘macroeconomics’ that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers’ delight. In particular, into a system without ‘compulsions’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while doing the opposite to workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the ‘mature’ and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies—including many economists and the ‘new’ left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end, the crisis materialised when markets took their inevitable revenge on the rentiers by calling their (blatant) bluff.