The Theory of Financial Crisis
a critical assessment
Keywords:
financial crises, financial fragility, Marxian crisis theoryAbstract
This article examines critically the main theories of financial crises. It analyses (i) the monetary theories, according to which financial crises emerge from discrepancies between supply and demand for money; (ii) the dominant approach, based on information asymmetries; (iii) the Keynesian theory, funded on the notion that crises emerges from the fluctuations of the marginal efficiency of capital caused by changes in expectations; (iv) Minsky’s financial fragility hypothesis; (v) the Marxian theory, based on the idea that crises are complex phenomena that result from the combination of the capitalist impulse to capital accumulation, the tendency of the rate of profit to fall, credit expansion and financial speculation. It concludes in favor of the Marxian explanation, which is based on the concept of credit as a “contradiction without mediation”: credit expansion not only allows for a crescent gap between production and consumption but also causes the valorization of capital to take off, which generates a crescent financial fragility system that eventually results in a crisis.
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