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From Prosperity into the Crisis and Back. On the Role of Economic Theories in the Long Cycle

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  • Stephan Schulmeister

Abstract

This essay reconsiders the interaction between the development of economic theories and economic reality since the 1920ies. I begin with the systemic cause of the financial crisis, the coincidence of three "bear markets" (stocks, real estate, commodities) which followed three parallel "bull markets". I then sketch the macroeconomic effects of the "manic-depressive" fluctuations of asset prices and show how they paved the road into the present crisis. As next step, I explain how "bulls" and "bears" are brought about. Then I sketch how the treatment of financial markets in economic theory and policy has shaped the long cycle from the financial boom of the 1920ies, the Great Depression, the post-war prosperity under "realcapitalistic" framework conditions to the "finance-capitalistic" regime since the 1970ies. The paper concludes with proposals how Europe could find roads to new prosperity. After the upcoming financial crisis there will be a window of opportunity to implement these proposals.

Suggested Citation

  • Stephan Schulmeister, 2018. "From Prosperity into the Crisis and Back. On the Role of Economic Theories in the Long Cycle," WIFO Working Papers 571, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2018:i:571
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    File URL: https://www.wifo.ac.at/wwa/pubid/61485
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