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Theories of finance and financial crisis: Lessons for the Great Recession

Nina Dodig, Hansjörg Herr
Institute for International Political Economy Berlin, 2015
Level: advanced
Perspectives: Institutionalist Economics, Marxian Political Economy, Neoclassical Economics, Other, Post-Keynesian Economics
Topic: Crises, Money & Debt
Format: Working paper/Journal article
Link: http://hdl.handle.net/10419/107759

Photo by Alec Favale on Unsplash

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Theories of finance and financial crisis: Lessons for the Great Recession

Nina Dodig, Hansjörg Herr | 2015

Abstract: This paper presents an overview of different models which explain financial crises, with the aim of understanding economic developments during and possibly after the Great Recession. In the first part approaches based on efficient markets and rational expectations hypotheses are analyzed, which however do not give any explanation for the occurrence of financial crises and thus cannot suggest any remedies for the present situation. A broad range of theoretical approaches analyzing financial crises from a medium term perspective is then discussed. Within this group we focused on the insights of Marx, Schumpeter, Wicksell, Hayek, Fisher, Keynes, Minsky, and Kindleberger. Subsequently the contributions of the Regulation School, the approach of Social Structures of Accumulation and Post-Keynesian approach, which focus on long-term developments and regime shifts in capitalist development, are presented. International approaches to finance and financial crises are integrated into the analyses. We address the issue of relevance of all these theories for the present crisis and draw some policy implications. The paper has the aim to find out to which extent the different approaches are able to explain the Great Recession, what visions they develop about future development of capitalism and to which extent these different approaches can be synthesized.

JEL codes: B14, B15, B24, B25, E11, E12, E13, E32

Key words: theories of crisis, Marxian, Institutional, Keynesian, capitalism, finance, financial crisis

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Go to: Theories of finance and financial crisis: Lessons for the Great Recession

Tags: crisis of capitalism | crisis theory | finance | financial crisis 2008 | recession | Working Paper
2016
Level: mittel
Financialization and the crises of capitalism
Since the 1980s, the financial sector and its role have increased significantly. This development is often referred to as financialization. Authors working in the heterodox tradition have raised the question whether the changing role of finance manifests a new era in the history of capitalism. The present article first provides some general discussion on the term financialization and presents some stylized facts which highlight the rise of finance. Then, it proceeds by briefly reviewing the main arguments in the Marxian framework that proposedly lead to crisis. Next, two schools of thought in the Marxian tradition are reviewed which consider financialization as the latest stage of capitalism. They highlight the contradictions imposed by financialization that disrupt the growth process and also stress the fragilities imposed by the new growth regime. The two approaches introduced here are the Social Structure of Accumulation Theory and Monthly Review School. The subsequent part proceeds with the Post-Keynesian theory, first introducing potential destabilizing factors before discussing financialization and the finance-led growth regime. The last section provides a comparative summary. While the basic narrative in all approaches considered here is quite similar, major differences stem from the relationship between neoliberalism and financialization and, moreover, from the question of whether financialization can be considered cause or effect.
Petra Dühnhaupt
Institute for International Political Economy Berlin
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Dr. Jack Rasmus
Exploring Economics
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Level: mittel
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Georgios Argitis, Trevor Evans, Jo Michell, Jan Toporowski
Institute for International Political Economy Berlin
2017
Level: mittel
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