Edited by Jan Toporowski and Jo Michell
With the global economy experiencing financial bubbles of growing frequency and financial crises of increasing severity, Thorstein Veblen’s macro-financial theory merits renewed attention. Developed within the context of his evolutionary analyses of the interplay between institutions and technology in the early twentieth century, the theory explained the systemic nature of debt creation and the macroeconomic consequences in the modern business enterprise economy. But as we explain in the following section, two versions of the theory emerged from Veblen’s analyses of institutional changes between 1904 and 1923.We then note how changes in regulatory policies and financial innovations that exploit advances in information technologies have enabled both versions to provide insights into the new ‘macroprudential risks’ to the financial system from a ‘shadow banking system’ and the ‘shadow trading systems’ (Bernanke, 2010, p. 2; Roane, 2010). We conclude with a Veblenian perspective on the role of the Federal Reserve in this new era of financial instability.
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