The Great Recession and the Contradictions of Contemporary Capitalism

The Great Recession and the Contradictions of Contemporary Capitalism

New Directions in Modern Economics series

Edited by Riccardo Bellofiore and Giovanna Vertova

The current crisis is one of the great crises punctuating the long history of capitalism, and to be properly understood it is vital to take into account its ongoing structural transformation. This book offers plural perspectives on the Great Recession, placing the analysis of finance, class and gender at the center of the debate. It begins with a comprehensive insight into the crisis, before moving on to focus on debt, asset inflation and financial fragility. Following chapters discuss global imbalances, structural monetary reform and the management of public finance, including a investigation of the Italian experience. The book concludes with novel contributions on the gender dimension of the crisis and the analogies between a nuclear and financial chain reaction.

Chapter 6: Debt, class and asset inflation

Jan Toporowski

Subjects: economics and finance, money and banking, post-keynesian economics


The mainstream view of household consumption and saving is based on the idea of a ‘representative’ household endowed with more or less perfect foresight, according to whether the theory is New Classical or New Keynesian. The traditional Keynesian view had household saving and consumption determined by income, with Post-Keynesian innovations in the form of differentiated propensities to consume on the part of workers or capitalists and, following Minsky, increasing indebtedness of firms (Minsky 1978). The analysis below in Section 4, based on the theories of Kalecki and Steindl, bears some relationship to the financial accelerator theory of Bernanke and Gertler, in using a similar ‘net worth’ factor in the analysis. However, it should be pointed out that Bernanke and Gertler do not provide any rationale for changes in net worth other than the observed fluctuation in net worth over the business cycle (Bernanke and Gertler 1989). In the twenty-first century, in particular following the financial crisis that broke out in 2007, more radical economists have tried to link financial instability with inequality of incomes. A number of studies (e.g. those of Dumenil and Levy 2011, Brenner 2006) have argued that the crisis is the outcome of rising household indebtedness at a time of stagnating or falling wage income, combined with a rising share of profits being paid to financial intermediaries.

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