Capitalism was not an inevitable historical evolution, but a unique combination of a particular emphasis on the value of individuals and individual property rights. During the past three centuries, as McCloskey has estimated it, individuals in the Western world have become richer by a factor of 30. Schumpeter wrote what was intended to be history of it in terms of economic ‘cycles’, but was weak on the causality of these because he did not give enough importance to institutions. However, in the form of changing property rights, these are the key to the origin and development of capitalism. The wealth that this generated came from technological innovation, but the pace of this slowed after World War I, and after a brief resurgence due to the Second World War, it was progressively replaced by innovations in finance. Capitalism’s power to generate real wealth was eroded from within, and Schumpeter’s prediction of its replacement by socialism became increasingly plausible.
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Edited by Brigitte Unger, Daan van der Linde and Michael Getzner
Brigitte Unger, Loek Groot and Daan van der Linde
This introduction aims to provide a framework to address not only the normative question on what ought to be the character and business of government (or any other public authority), but also to positively evaluate shifts between private and public roles in recent history. Historical evaluations of the balance between market, state and society may serve as an alternative for models arguing that the ‘right’ configuration exists: why did current tasks evolve the way they did, and what can be learned from the past? Changes in technology or in the economic environment (such as the emergence of the European Union and globalization) can be held responsible for shifts in the optimal allocation between the public and private sphere, but there might also be a major shift of preferences regarding what should be public or private. Although it is hard to claim that the pendulum in the division between public and private, or market and government, has begun to reverse its swing, we feel it is important to give an account of the public sector in order to better understand what is at stake.
This chapter briefly describes the key characteristics of the contemporary crisis. The first characteristic is related to the place where it originated. The second concerns the phenomenon that triggered the crisis, that is, the substantial increase in delinquencies in a specific category of residential mortgages, namely, the so-called subprime mortgages. The third characteristic had to do with the evolution of the crisis since 2007.