While I was in high school, I took a microeconomics class at the local university from the father of one of my high school friends, now decased. He included a material about
Joseph Schumpeter (1883-1950), who is most famous for coining the term "creative destruction" to describe the mechanism of capitalism. His big insights included the link between technological change and economic growth, and the observation that the leading firms in one technological era are rarely the firms that come to dominant the next. Schumpeter is my favorite economist.
Schumpter's intellectual successor in our era, Hyman Minsky (
who trained under Schumpter), died over a decade ago and is rapidly coming into vogue as the man who captures the essence of the current financial crisis. Some of Minsky's
greatest quotes:
Instability is an inherent and inescapable flaw of capitalism.
and
There is nothing wrong with macroeconomics that another depression [won’t] cure.
"Instability is an inherent and inescapable flaw of capitalism."
ReplyDeleteWhen I first read this, I immediately agreed with it since I agree with your quote of Schumpeter where technological progress is linked to capitalism, and technological progress destabilizes society.
But then I dug into the context of Minsky's quote and found out he was referring to the boom and bust cycle. Minsky is all wrong. The boom and bust cycle is inherent to fractional reserve banking, not to capitalism. A gold-standard no-fractional-reserve capitalistic system would be stable.
Boom and bust cycles were a huge issue long before the gold standard was abandoned with all the vengence we see in them today.
ReplyDeleteFractional reserve credit arrangements are a "natural" phenomena of contract law that can't be easily rendered illegal. Still, there is no evidence that economies that don't make widespread use of credit arrangements don't have intense boom and bust cycles.