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

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  • Erik S. Reinert

Abstract

This paper 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 Schumpeterÿs observation of the clustering of innovations. Carlota Perez has more recently developed Schumpeterÿs vision into a theory of techno-economic paradigms which . about midway in their trajectory . produce the build-up to financial crises. The theories of Schumpeterian economist Hyman Minsky, describing the mechanisms producing the collapse of financial bubbles complete the overview. The paper 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 driverÿs seat of capitalism.

Suggested Citation

  • Erik S. Reinert, 2012. "Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 39, TUT Ragnar Nurkse School of Innovation and Governance.
  • Handle: RePEc:tth:wpaper:39
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    File URL: http://hum.ttu.ee/wp/paper39.pdf
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    Cited by:

    1. 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.
    2. 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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