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Casino Capitalism with Derivatives: Fragility and Instability in Contemporary Finance

Author

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  • Rex A. McKenzie

    (University of Witwatersrand, Johannesburg, South Africa, rex.mckenzie@wits.ac.za)

Abstract

This is a theoretical article exploring the relationship between financial fragility, derivative trading, and financial crisis. It synthesizes the work of Hyman Minsky (1977, 1985), Jan Toporowski (2001), and Dick Bryan and Michael Rafferty (2006). The decade immediately after 1971 is presented as a key period with key events that shaped a Wall Street revolution that now drives world capitalism. Balance sheet computations of expected profitability emerge as the main driver of a contemporary capitalism that is inherently more competitive than before. Debt, credit, and liquidity, therefore, play crucial parts in a world system where banks and corporations have been joined by new rentier institutions in riskier speculative business activities that now characterize the system. The conclusions are largely Keynesian “. . . when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.†JEL classifications: G12, P1

Suggested Citation

  • Rex A. McKenzie, 2011. "Casino Capitalism with Derivatives: Fragility and Instability in Contemporary Finance," Review of Radical Political Economics, Union for Radical Political Economics, vol. 43(2), pages 198-215, June.
    • Handle: RePEc:sae:reorpe:v:43:y:2011:i:2:p:198-215
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    References listed on IDEAS

    as
    1. Paul Davidson, 2002. "Financial Markets, Money and the Real World," Books, Edward Elgar Publishing, number 2467.
    2. Dick Bryan & Michael Rafferty, 2006. "Capitalism with Derivatives," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-50154-6, September.
    3. Jan Kregel, 2008. "Minsky’s Cushions of Safety: Systemic Risk and the Crisis in the U.S. Subprime Mortgage Market," Economics Public Policy Brief Archive ppb_93, Levy Economics Institute.
    4. Germain,Randall D., 1997. "The International Organization of Credit," Cambridge Books, Cambridge University Press, number 9780521598514.
    5. Harvey, David, 2007. "A Brief History of Neoliberalism," OUP Catalogue, Oxford University Press, number 9780199283279.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    7. Germain,Randall D., 1997. "The International Organization of Credit," Cambridge Books, Cambridge University Press, number 9780521591423.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Pedro Linhares Rossi & Guilherme Santos Mello, 2014. "The Fourth Dimension: Derivatives As A Form Of Capital," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 025, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Rex McKenzie & Rowland Atkinson & Andrea Ingianni, 2024. "Applying the global wealth chain typology to property purchases in the Liverpool and Merseyside Area," Environment and Planning A, , vol. 56(2), pages 367-381, March.
    3. Ricardo de Medeiros Carneiro & Pedro Rossi & Guilherme Santos Mello & Marcos Vinicius Chiliatto-Leite, 2015. "The Fourth Dimension," Review of Radical Political Economics, Union for Radical Political Economics, vol. 47(4), pages 641-662, December.
    4. McKenzie, Rex & Pons-Vignon, Nicolas, 2012. "Volatile Capital Flows and a Route to Financial Crisis in South Africa," MPRA Paper 40119, University Library of Munich, Germany.

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    More about this item

    Keywords

    debt; credit; liquidity; derivatives and capital;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies

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