The Demise of Finance-dominated Capitalism

The Demise of Finance-dominated Capitalism

Explaining the Financial and Economic Crises

New Directions in Modern Economics series

Edited by Eckhard Hein, Daniel Detzer and Nina Dodig

This book provides an overview of different theoretical perspectives on the long-run transition towards finance-dominated capitalism, on the implications for macroeconomic and financial stability, and ultimately on the recent global financial and economic crisis. In the first part, the macroeconomics of finance-dominated capitalism, the theories of financial crisis and important past crises are reviewed. The second part deals with the 2007-09 financial and economic crisis in particular. The special focus is on the long-run problems and inconsistencies of finance-dominated capitalism which played a key role in the crisis and its level of severity.

Chapter 1: The transition towards finance-dominated capitalism: French Regulation School, Social Structures of Accumulation and post-Keynesian approaches compared

Eckhard Hein, Nina Dodig and Natalia Budyldina

Subjects: economics and finance, financial economics and regulation, post-keynesian economics


This chapter provides a comparative overview of some important literature on financial, economic and social systems with an eye towards explaining the tendencies towards finance-dominated capitalism or ‘financialization’, broadly understood as ‘the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’ (Epstein 2005a, p. 3). The chapter focuses on important strands of the literature, the French Regulation School, the Social Structures of Accumulation approach, mainly generated in the USA, and the contributions by several post-Keynesian authors, with a focus on the long-run views contained in Hyman Minsky’s work, in particular. What these approaches have in common is the notion that capitalist development is embedded in social institutions and that there is a kind of interdependence between the set of institutions and economic development, each feeding back on the other. Therefore, in each of these approaches different stages of development, or different regimes, of modern capitalism can be distinguished, and some insights into the dynamics of these regimes can be obtained.