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Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky

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  • Reinert, Erik S.

    (Faculty of Economics and Management UniversitiKebangsaan Malaysia 43600 UKM Bangi MALAYSIA)

Abstract

This article provides a historical and theoretical overview of the mechanisms leading up to financial crises and financial bubbles. It suggests that the potentially explosive growth of the financial sector at the expense of the real economy fed by compound interest has - since before Ancient Mesopotamia under the rule of Hammurabi - represented a real threat for such crises. A more modern and additional factor that builds up crises is Joseph Schumpeter’s observation of the clustering of innovations. Carlota Perez has more recently developed Schumpeter’s vision into a theory of techno-economic paradigms which - about midway in their trajectory - produce a build-up to financial crises. The theories of Schumpeterian economist Hyman Minsky, which describe the mechanisms leading to the collapse of financial bubbles, complete the overview. The article ends with recommendations to bring the West out of the present crisis by -once again - putting the real economy, rather than the financial economy, in the driver’s seat of capitalism.

Suggested Citation

  • Reinert, Erik S., 2012. "Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 46(1), pages 85-100.
    • Handle: RePEc:ukm:jlekon:v:46:y:2012:i:1:p:85-100
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    References listed on IDEAS

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    1. Erik Reinert & Arno Daastøl, 1997. "Exploring the Genesis of Economic Innovations: The Religious Gestalt-Switch and the Duty to Invent as Preconditions for Economic Growth," European Journal of Law and Economics, Springer, vol. 4(2), pages 233-283, May.
    2. Dimitri B. Papadimitriou & L. Randall Wray (ed.), 2010. "The Elgar Companion to Hyman Minsky," Books, Edward Elgar Publishing, number 13122.
    3. José Gabriel Palma, 2009. "The revenge of the market on the rentiers," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 829-869, July.
    4. Erik S. Reinert, 2012. "Economics and the Public Sphere," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 40, TUT Ragnar Nurkse Department of Innovation and Governance.
    5. Rainer Kattel & Erik S. Reinert, 2010. "Modernizing Russia: Round III. Russia and the other BRIC countries: forging ahead, catching up or falling behind?," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 32, TUT Ragnar Nurkse Department of Innovation and Governance.
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    Cited by:

    1. Abdul Bahri, Elya Nabila & Mohd Nor, Abu Hassan Shaari & Sarmidi, Tamat & Haji Mohd Nor, Nor Hakimah, 2018. "Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 15-30.
    2. Reinert, Erik S., 2013. "Civilizing capitalism: “good” and “bad” greed from the enlightenment to Thorstein Veblen (1857-1929)," MPRA Paper 47931, University Library of Munich, Germany.
    3. Reinert, Erik S., 2012. "Neo-classical economics: A trail of economic destruction since the 1970s," MPRA Paper 47910, University Library of Munich, Germany.

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