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Financialization in a Long-Run Perspective

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  • Alessandro Vercelli

Abstract

This paper argues that there is a secular tendency toward financialization that is intrinsic in the development of market relations. The driving force of this evolutionary process is rooted in a fairly continuous flow of financial innovations meant to remove the existing constraints to the flexibility of economic transactions. For example, according to received wisdom, the adoption of money as a medium of exchange has removed the strictures of the double coincidence of wants, while the modern forms of credit have been developed to relax the cash-in-advance constraint on economic transactions. As these examples suggest, financial innovations aim to extend the set of exchange options in time, space, and contents for the decision makers who introduce them. Financial innovations are adopted because, ceteris paribus, a larger option set is positively correlated with higher expected returns and pay-off opportunities. Their systemic effects, however, may have negative implications such as financial instability, underinvestment in the real sector, unemployment, and stagnation. When the negative consequences accumulate beyond a tolerable threshold, the remedy has to be sought in stricter rules of self-regulation, or rather of regulation by law, or even in severe measures of financial repression. The fact that this has not happened since the recent deep crisis has further enhanced the unsustainability of the current process of financialization.

Suggested Citation

  • Alessandro Vercelli, 2013. "Financialization in a Long-Run Perspective," International Journal of Political Economy, Taylor & Francis Journals, vol. 42(4), pages 19-46.
  • Handle: RePEc:mes:ijpoec:v:42:y:2013:i:4:p:19-46
    DOI: 10.2753/IJP0891-1916420402
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    Cited by:

    1. Diogo Correia & Ricardo Barradas, 2021. "Financialisation and the slowdown of labour productivity in Portugal: A Post-Keynesian approach," PSL Quarterly Review, Economia civile, vol. 74(299), pages 325-346.
    2. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "Some New Insights on Financialisation and Income Inequality," Department of Economics University of Siena 792, Department of Economics, University of Siena.
    3. Photis Lysandrou & Taimaz Ranjbaran, 2021. "Financialisation reinforced: the dual legacy of the covid pandemic," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 589-606, December.
    4. Gerald Epstein, 2018. "On the Social Efficiency of Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 330-352, March.
    5. Ricardo Barradas, 2023. "Why Has Labor Productivity Slowed Down in the Era of Financialization?: Insights from the Post-Keynesians for the European Union Countries," Review of Radical Political Economics, Union for Radical Political Economics, vol. 55(3), pages 390-422, September.
    6. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".
    7. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "A Multi-Sectoral Approach to Financialisation," Department of Economics University of Siena 794, Department of Economics, University of Siena.
    8. João Alcobia & Ricardo Barradas, 2023. "Functional Income Distribution And Secular Stagnation In Europe: An Analysis Of The Post-Keynesian Growth Drivers," Working Papers REM 2023/0283, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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