What is it about?

How have we arrived at a position where equity trading markets rule the roost in capitalism and so much economic theory no longer seems to work? Must we have regular crashes? And why are they so unpredictable? Was Hayek right when, in his Nobel Prize lecture, he said of economists: 'As a profession, we have made a mess of things'? Read on!

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Why is it important?

Frustration with contemporary economics has caused much debate about the differences between Classical and Neoclassical approaches. The debate has been vague, become stale and has solved nothing. I highlight a different divide: that between the productive primary markets of the economy and the unproductive secondary markets of the financial sector. In primary markets, useful goods and services are bought and sold. In secondary markets, financial instruments are traded back and forth for financial advantage. Both may be 'free markets', but are completely different in their economic impact. This approach exposes many flaws in the contemporary system of financialized capitalism. It also allows us to see that there are alternative capitalist models that circumvent the flaws.

Perspectives

I ask every economist, finance professional and banker I meet: "Who developed the stock market?" No one has yet been able to answer but, when prompted, all believe it was carefully designed by experienced and enlightened people to optimise the use of equity for business development. This is far from the truth. It was an accident of history through a breach of contract, producing an unstable system that has caused consternation ever since. This is the story of the origin of equity markets, their rise to pre-eminence in capitalism and the various consequences along the way. Although contemporary Financial Capitalism is found to be on an adverse trajectory, however, the approach I've taken exposes a way out.

Catherine Macaulay
GI ThinkTank

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This page is a summary of: Financializing capitalism: 400 Years of equity market development, Competition & Change, July 2019, SAGE Publications, DOI: 10.1177/1024529419858337.
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