Functional “reversal” and dimensional “decoupling” of “finance” and “the real economy”: a reflection on the “Kaleckian” and “Minskian” limits to over-financialization

The predominance of “financial” interests in the operation of present-day capitalism is very much at the centre of the research agenda within the “Post-Keynesian” field. Two “schools”, firmly established in this tradition, and talented scholars, have provided advances for the understanding of the implications and risks of “financialization”. I refer to the schools, intuitively, as the “Kaleckian” and the “Minskian” schools. “Neo-Kaleckians” stress the medium-term implications for growth performance and distributive trends in the real economy; “Minskians” have recently insisted that innovative practices of modern finance such as shadow banking, securitization, etc., will eventually increase the fundamental “fragility” of capitalism, as in Minsky’s seminal intuition. Although extensive literature has produced important results in recent years, there is still ground for further, “comprehensive”, reflection upon the interaction between “finance” and “the real economy”. This contribution is targeted in that direction. Two phenomena are described as “fundamentals”, giving rise to further consequences. The first is reversal: the relationship between the financial and the real spheres of the economy is now “inverted” with respect to the conventional wisdom of economists, which holds that “finance” services the “real economy”, turning savings into investments. With the reversal, it is now the real economy that services finance, as the originator of debt obligations, upon which assets and trading on the financial markets are established. The second is decoupling: this is understood as the dilatation of the value of financial wealth, relative to real output levels and growth. One important piece of evidence for this notion is the decline in investment to profit ratios in mature economies. Can actual trends in real growth “sustain”, for evermore, a disproportional inflation of financial values? Might the ratio to GDP of the value of the “patrimoines”, by which I mean the aggregation of all riches (Piketty) steadily increase? If the valuation of financial assets is essentially founded upon the servicing of debt obligations out of the proceeds of real activities, more and more “decoupling” might imply that there is a risk that capitalism may engage in a global “Ponzi” scheme.