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Finance and Crisis: Marxian, Institutionalist and Circuitist Approaches A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Argitis, Georgios; Evans, Trevor; Michell, Jo; Toporowski, Jan Working Paper Finance and crisis: Marxian, institutionalist and circuitist approaches Working Paper, No. 45/2014 Provided in Cooperation with: Berlin Institute for International Political Economy (IPE) Suggested Citation: Argitis, Georgios; Evans, Trevor; Michell, Jo; Toporowski, Jan (2014) : Finance and crisis: Marxian, institutionalist and circuitist approaches, Working Paper, No. 45/2014, Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin This Version is available at: http://hdl.handle.net/10419/105260 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Institute for International Political Economy Berlin Finance and Crisis: Marxian, Institutionalist and Circuitist Approaches Authors: Georgios Argitis, Trevor Evans, Jo Michell and Jan Toporowski Working Paper, No. 45/2014 Editors: Sigrid Betzelt Trevor Evans Eckhard Hein Hansjörg Herr Martin Kronauer Birgit Mahnkopf Achim Truger Markus Wissen Finance and Crisis: Marxian, Institutionalist and Circuitist approaches Georgios Argitis (University of Athens) Trevor Evans (Berlin School of Economics and Law) Jo Michell (University of the West of England) Jan Toporowski (School of Oriental and African Studies, London University) Abstract Most mainstream neoclassical economists completely failed to anticipate the crisis which broke in 2007 and 2008. There is however a long tradition of economic analysis which emphasises how growth in a capitalist economy leads to an accumulation of tensions and results in periodic crises. This paper first reviews the work of Karl Marx who was one of the first writers to incorporate an analysis of periodic crisis in his analysis of capitalist accumulation. The paper then considers the approach of various subsequent Marxian writers, most of whom locate periodic cyclical crises within the framework of longer-term phases of capitalist development, the most recent of which is generally seen as having begun in the 1980s. The paper also looks at the analyses of Thorstein Veblen and Wesley Claire Mitchell, two US institutionalist economists who stressed the role of finance and its contribution to generating periodic crises, and the Italian Circuitist writers who stress the problematic challenge of ensuring that bank advances to productive enterprises can successfully be repaid. JEL codes: B14, B15, B24, B25, E11, E32 Key words: Capitalism, finance, crisis Contact details: Trevor Evans, [email protected] Acknowledgments: The research leading to these results has received funding from the European Union Seventh Framework Programme (FP7/2007-2013) for research, technological development and demonstration under grant agreement n° 266800 (www.fessud.eu) Contents 1. Introduction ................................................................................................................................ 1 2. Karl Marx ................................................................................................................................... 4 3. Rudolf Hilferding ..................................................................................................................... 12 4. Rosa Luxemburg ...................................................................................................................... 19 5. The (old) Institutionalist Analysis ............................................................................................ 22 6. Michal Kalecki and Josef Steindl ............................................................................................. 27 7. Paul Sweezy and the Monthly Review ...................................................................................... 32 8. The Italian Circuitists ............................................................................................................... 36 9. The Regulation school .............................................................................................................. 42 10. Ricardo Bellofiore .................................................................................................................... 48 11. Makoto Itoh and Costas Lapavitsas .......................................................................................... 54 12. Gérard Duménil and Dominique Lévy ..................................................................................... 61 13. Conclusion ................................................................................................................................ 67 References ............................................................................................................................................ 68 1. Introduction Mainstream neoclassical economists – with a few honourable exceptions, such as Raghuram Rajan – completely failed to anticipate the financial crisis which broke out in 2007 and 2008. Perhaps more scandalously, standard textbooks continue to portray the economy without addressing any of the key issues which the crisis has thrown up about the stability and sustainability of growth in a capitalist economy. There is, however, a long tradition of economic literature which has always insisted on the need to incorporate into the centre of economic analysis the cyclical nature of economic growth under capitalism and its propensity to generate periodic financial crises. This paper will attempt to outline how selected Marxist, Institutionalist and so-called Circuitist writers have approached these issues.1 Karl Marx was one of the earliest writers to observe that capitalist economies grow in spurts that lead to an accumulation of tensions which, due to the over-expansion of the financial system, resulted in major crises approximately every ten years from 1825. He considered that such crises were integral to capitalist growth but that they also played an important role in laying the basis for a new period of expansion. After the crisis in 1873, when Marx was in his final years, there are indications he thought that, in addition to the ten year cycle, the economy had entered a longer, more protracted period of slower growth. Rudolf Hilferding, building on Marx’ analysis in the early twentieth century, argued that a new phase of capitalism had developed since the late nineteenth century, most notably in Germany, in which large banks had come to fuse with and dominate large industrial groups. These large groups of finance capital, he argued, were able to insulate themselves to some extent from the vicissitudes of the business cycle by shifting much of the burden of periodic crises onto smaller units of capital. Rosa Luxemburg, writing around the same time, was less concerned with cyclical crises than with the long term problems for a capitalist economy of finding a market for the ever expanding output of commodities. Famously, she argued that it was this pressure to find new markets that explained the rapacious colonial expansion of the major capitalist states in the late nineteenth century. In the United States writers associated with the so-called institutionalist tradition also highlighted the destabilising role of finance in a capitalist economy. In the early twentieth century Thorstein Veblen examined the role of financial markets for corporations, and argued that successful firms that have access to credit will become over-leveraged and that this ultimately leads to financial instability and crises. Shortly after, Wesley Claire Mitchell drew on Veblen to develop a sophisticated analysis of the stages of the business cycle in a profit-driven economy which combined an interaction of production and financial developments, and identified periodic financial crises as one important stage in the cycle. 1 Responsibility for drafting the different sections was as follows. Georgios Argeitis: the ‘old’ institutionalists; Trevor Evans: Marx, Hilferding, Luxemburg, the Regulation School, and Duménil & Levy; Jo Michell: the Italian circuitists, Bellofiore, and Itoh & Lapavitsas; Jan Toporowski: Kalecki & Steindl and Sweezy & the Monthly Review. Thanks to Natalia Budyldina for revising the references and preparing the bibliography. Jo Michell would like to thank Annina Kaltenbrunner, Tony Norfield, Giuseppe Fontana and Duncan Lindo for helpful comments on his drafts. 1 Michael Kalecki developed his ideas in the 1930s
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