Implications of different understandings of financial crises for divergent conclusions on the connections between finance and sustainability

The reasons and implications of different understandings of the ongoing financial crisis may be thoroughly assessed by starting the investigation from a taxonomy of the competing visions of the capitalist system and of the approach required to understand it. This paper focuses in particular on the nexus between money/credit/finance (from now on “money”) on one side and the real economy on the other side and is articulated in a sequence of sections grouped in three parts. The first part sketches the historical and conceptual path that leads from the early reflections on money to the recent insights on financialisation, stressing only the basic conceptual options and their implications. The analysis starts from the quantitative aspects of money that have been since long a crucial object of political economy, then economics and finally macroeconomics. Section 2 I sketches a bird’s eye view of the mainstream approach from Hume to Woodford; then section 3 outlines the parallel evolution of the heterodox point of view from Marx to Minsky. Section 4 discusses the main views of orthodox and heterodox economists on money as structure. Section 5 investigates why the different paradigms mentioned above lead to different understandings of the meaning and role of financialisation. The second part sketches the conceptual path that leads from the early reflections on economic crises to different understandings of the great crises and to contrasting views on the sustainability of the economic system. Section 6 I discusses the foundations and implications of different views on business-cycle crises while section 7 I considers the main approaches to the understanding and control of great crises. Finally section 8 examines the concepts of sustainability associated to the paradigms analysed above. The third part investigates the interaction between financialisation and sustainability from the synchronic point of view (section 9), and then from the diachronic point of view (section 10), focusing on their broad policy implications. Section 11 concludes.