Essential and Peculiar Causes of the Present Crisis by Claudio Sardoni

Abstract

For Marx, `the ultimate reason for all real crises always remains the poverty
and restricted consumption of the masses as opposed to the drive of capitalist
production to develop the productive forces as though only the absolute consuming
power of society constituted their limit' (Marx 1959, p. 484).

This is also the ultimate reason of the crisis that market economies have been
experiencing in the last years. However, it is also true that each single crisis takes
on specific forms, which are contingent on specific events and, most of all, on the
historical phase when it takes place. Such a qualification is certainly true also
for the present crisis that, we believe, is characterized by the new role that the
financial sector has played in it.

Finance has always been crucial and decisive in the capitalist process of accu-
mulation and growth. Finance favors the process of investment by making it less
risky at the individual level.1 However, finance is inherently prone to speculation
and crises that inevitably reverberate through the real economy (Keynes 1936,
chapter 18).

More specifically, the financial sector functions as a sort of `accelerator'. In
the expansionary phase it enhances the capitalist tendency to push investment
and production to the maximum. During this phase, both lenders and borrowers
become more and more optimistic, i.e. less and less risk-averse. When the expan-
sionary phase comes to an end, the crisis is made worse by the restrictive effects
of the financial crash (Minsky 1982).

However, in the present situation, finance has played a new more specific role.
In a context in which the push to invest has weakened and inequality has been
increasing in all Western countries, finance contributed to the capitalist attempt
to overcome the constraints engendered by the limited purchasing power of the
`masses'. Credit to consumption as well housing, as is well known, has allowed the
economy to keep on growing despite the increasing decline of workers' real income
and the relatively low propensity to invest.

At the same time `innovation', with the creation of more and more sophisticated
instruments, and the impressive outgrowth of the financial sector have pushed
toward a further decoupling of finance from the real economy. Contrarily to the
believes of most mainstream economists, more liquid financial markets have not

1Even though not less risky at the social aggregate level.

2 CLAUDIO SARDONI SAPIENZA UNIVERSITY OF ROME
favored investment and productive growth, but more volatility and instability at
the domestic as well as international level.
Finance has played less and less its ancillary and indispensable role with respect
to the real economy. The process of `financialization' goes hand in hand with
the secular process of de-industrialization of Western economies. This can give
emerging countries significant opportunities of growth and development if they
are able to protect themselves from what we might call the `financial infection',
advocated by so many in the Western world.

References
Keynes, J. M.: 1936, The General Theory of Employment Interest and Money, 1st
edn, Macmillan, London.
Marx, K.: 1959, Capital, Book III, Progress Publishers, Moscow.
Minsky, H. P.: 1982, Can It Happen Again?, Sharpe, Armonk.

Chair Person:Andrew Fischer

Further info:

kingdon@remove-this.iss.nl