The Dynamics of Bubbles and Golden Ages
Chapter 13: The Changing Nature of Financial and Institutional Innovations
138 Technological Revolutions and Financial Capital 13. The Changing Nature of Financial and Institutional Innovations So far it has been proposed that the irruption of technological revolutions every 40 to 60 years unleashes a process of transformation that affects every aspect of society. For approximately the first half of the surge, financial capital drives the diffusion process, forcefully pushing the revolution forward. During the second half, it is usually production capital that conducts the growth process propagating the paradigm across the economy. Throughout the successive phases of diffusion, deep and widespread transformations must occur, which demand adequate innovations not only in the production sphere – in products, processes and modes of organization – but also in finance and institutions. These innovations condition the extent to which a technological revolution will deliver its potential and the distribution of its economic and social benefits. In turn, it is the characteristics of the specific revolution that will determine the nature of the problems to solve by the innovations in both those spheres and, through the principles of the paradigm, the manner in which to solve them. A. Financial Innovations from Phase to Phase The process of switching from a production-led economy in the deployment period to a finance-led economy in the installation period (and vice versa), profoundly affects the direction and intensity of innovation in the financial sphere itself. In fact, as has been discussed throughout Part II, in each of the phases the behavior of finance capital is strongly influenced by the changing quantity...
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