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Liberalised finance and instability : "Does it drop out as a matter of logic" ?

Listed author(s):
  • Faruk Ülgen


    (CREG - Centre de recherche en économie de Grenoble - Grenoble 2 UPMF - Université Pierre Mendès France)

This article seeks to bring out the conceptual weaknesses of the assertion that free market mechanisms and liberal financial structures are necessary conditions for economic growth and stability, and to draw implications regarding financial regulatory policies required for the systemic viability. In this aim, it studies the very characteristics of a capitalist economy as a monetary economy and suggests an institutionalist analysis of the hypothesis of endogenous financial instability of Hyman P. Minsky. The process of financial liberalisation since the late 1970s led economies to a speculation-based accumulation regime. However, the sustainability of such a regime reveals to be extremely fragile since it suffers from the conflict of interest, fallacy of composition, absence of macreconomic vision and lack of consideration of the interconnectedness among market actors. Therefore these pitfalls of free and decentralised markets must be addressed towards collective rules and principles if one would prevent them from continuously resulting in systemic financial turnmoil. The main implication of such an analysis is that tough macro-prudential regulatory reforms must be implemented in order to create public-led supervision systems in which social efficiency should replace the individual economic efficiency criterion and lead policies to prevent speculative banking and finance and direct markets towards system-consistent behaviour.

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Paper provided by HAL in its series Post-Print with number halshs-01137791.

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Date of creation: 2014
Publication status: Published in Limes plus. Journal of social sciences and humanities, 2014, 11 (3), pp.11-28
Handle: RePEc:hal:journl:halshs-01137791
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