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'Financialisation' in Post-Keynesian models of distribution and growth - a systematic review

  • Eckhard Hein

    ()

    (IMK at the Hans Boeckler Foundation and Carl von Ossietzky University Oldenburg, Germany)

  • Till van Treeck

    ()

    (IMK at the Hans Boeckler Foundation)

We review recent attempts to integrate 'financialisation' processes into Post-Keynesian distribution and growth models and distinguish three principal channels of influence: 1. objectives and finance restrictions of firms, 2. new opportunities for households' wealth-based and debt-financed consumption, and 3. distribution between capital and labour, on the one hand, and between management and workers on the other hand. Starting from a re-interpretation of the Post-Keynesian theory of the firm we bridge the gap between micro- and macro-analysis of 'financialisation' and we trace the main characteristics and effects of 'financialisation' from the micro to the macro level taking into account stock-flow interactions. Our review of the theoretical literature on 'financialisation' shows that expansive effects may arise under certain conditions, in particular when there are strong wealth effects in firms' investment decisions (via Tobin's q) and in households' consumption decisions. However, our review also suggests that even an expansive finance-led economy may build up major financial imbalances, i.e. increasing debt-capital or debt-income ratios, which make such economies prone to financial instability.

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 10-2008.

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Length: 24 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:imk:wpaper:10-2008
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  1. Soon Ryoo & Peter Skott, 2008. "Financialization in Kaleckian Economies with and without Labor Constraints," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 5(2), pages 357-386.
  2. Till van Treeck, 2008. "Reconsidering The Investment-Profit Nexus In Finance-Led Economies: An Ardl-Based Approach," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 371-404, 07.
  3. Marc Lavoie, 2009. "Cadrisme within a Post-Keynesian Model of Growth and Distribution," Review of Political Economy, Taylor & Francis Journals, vol. 21(3), pages 369-391.
  4. Eckhard Hein, 2006. "Interest, Debt and Capital Accumulation—A Kaleckian Approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 337-352.
  5. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
  6. Till van Treeck & Thomas Dallery, 2008. "Conflicting claims and equilibrium adjustment processes in a stock-flow consistent macro model," IMK Working Paper 09-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. Hein, Eckhard, 2004. "Interest rate, debt, distribution and capital accumulation in a post-Kaleckian model," WSI Discussion Papers 133, .
  8. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Economics Working Paper Archive wp_525, Levy Economics Institute.
  9. Marc Lavoie, 1995. "Interest Rates In Post-Keynesian Models Of Growth And Distribution," Metroeconomica, Wiley Blackwell, vol. 46(2), pages 146-177, 06.
  10. Bhaskar, V. & Glyn, A., 1992. "Investment and Profitability: The Evidence from the Advanced Capitalist Countries," Economics Series Working Papers 99144, University of Oxford, Department of Economics.
  11. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
  12. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
  13. Thomas Dallery, 2009. "Post-Keynesian Theories of the Firm under Financialization," Review of Radical Political Economics, Union for Radical Political Economics, vol. 41(4), pages 492-515, December.
  14. Amit Bhaduri & Kazimierz Laski & Martin Riese, 2006. "A Model Of Interaction Between The Virtual And The Real Economy," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 412-427, 07.
  15. James R. Crotty, 1990. "Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment of Keynes, Tobin, and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(4), pages 519-542, July.
  16. Till van Treeck, 2009. "A synthetic, stock--flow consistent macroeconomic model of 'financialisation'," Cambridge Journal of Economics, Oxford University Press, vol. 33(3), pages 467-493, May.
  17. Engelbert Stockhammer, 2007. "Some Stylized Facts on the Finance-Dominated Accumulation Regime," Working Papers wp142, Political Economy Research Institute, University of Massachusetts at Amherst.
  18. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers geewp14, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  19. Engelbert Stockhammer, 2006. "Shareholder value orientation and the investment-profit puzzle," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(2), pages 193-215, January.
  20. Craig Medlen, 2003. "The trouble with Q," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(4), pages 693-698, July.
  21. Lavoie, M. & Seccareccia, M., 1999. "Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?," Working Papers 9904e, University of Ottawa, Department of Economics.
  22. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
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