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Schumpeterian economic development and financial innovations: a conflicting evolution

Published online by Cambridge University Press:  29 January 2014

FARUK ÜLGEN
FARUK ÜLGEN*
Affiliation:
Department of Economics, Centre de Recherche en Economie de Grenoble (CREG), University of Grenoble Alpes, Grenoble 38040, France.
*
*Email: ulgen.faruk@upmf-grenoble.fr
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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.

Type
Research Article
Information
Journal of Institutional Economics , Volume 10 , Issue 2 , June 2014 , pp. 257 - 277
Copyright
Copyright © Millennium Economics Ltd 2014 

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