Schumpeterian economic development and financial innovations: a conflicting evolution

Abstract

Abstract:Although in the Schumpeterian process of entrepreneurial innovations money and financial markets are assumed to affect economic development, Schumpeter does not explicitly study financial evolution and its effects on real dynamics. In order to fill this gap, this article suggests a Minsky-inspired interpretation of Schumpeterian institutional dynamics in monetary terms. It then develops a specific Schumpeterian analysis of the evolution of financial institutions and regulatory mechanisms in the wake of the 2007–08 crisis and points to major consequences of financial innovations on economic stability. It appears that unlike the creative destruction process of entrepreneurial innovations, in a liberalised/deregulated environment financial innovations move banks from their crucial role of financing long-term economic evolution and lead to reckless finance. Thus, financial market dynamics put economies on a destructive path. Such an evolution calls for active and tight rational regulation in order to shape capitalist finance towards more stable and welfare-enhancing strategies.

The Formation of Idiosyncratic Structure of Institutions and Culture

“…60–61) also stated that “economic sociology deals with institutions,” which is contrasted to economic theory dealing with purely economic phenomena and mechanisms. In the Schumpeterian competition scheme innovation plays a key role in economic change through the increase in the efficiency of the economic and institutional structure (Ülgen, 2014 ). Furthemore, Swedberg ( 2002 , p. 250) argued that for Schumpeter, institutions are a necessary condition for a vigorous capitalism.…”

From optimal to stagnant growth: The role of institutions and culture

“…Schumpeter (1934: 60-61) also stated that "economic sociology deals with institutions," and so contrasts with economic theory, which deals with purely economic phenomena and mechanisms. In the Schumpeterian competition scheme, innovation plays a key role in economic change through increasing the efficiency of the economic and institutional structure (Ulgen, 2011). Furthermore, Swedberg (2002: 250) argued that for Schumpeter, institutions are necessary to vigorous capitalism.…”

The evolution of the Offshore US-Dollar System: past, present and four possible futures

“…The primacy of the political came about only in a systemic crisis when emergency interventions steered the system's further evolution. Thus, the article adopts the analytical perspective that the transformation which led to the emergence of the Offshore US-Dollar System followed a functionalist logic – private agency pushes institutional transformation forward and with a time lag public agency follows suit to backstop the system in a crisis (Minsky, 1986; Murau, 2017a; Ülgen, 2014).…”