How Monopoly-Finance Capital Leads to Economic Stagnation

For Cassidy, it was the reasoned historical analysis of capitalism developed by Minsky and Sweezy that allowed each of them to perceive the dramatic transformations leading up to the early twentyfirst-century crisis. “Minsky and Sweezy didn’t agree on everything, but their highly developed critical faculties allowed them to see, well before many mainstream economists, that a new model of financially driven capitalism had emerged.” Indeed, the “worldwide slump” that had its origins in the United States in 2007 “demonstrated that Minsky and Sweezy had been right when they said the fortunes of the economy at large couldn’t be divorced from what happened on Wall Street.” For Sweezy, in particular, stagnation and financialization represented coevolutionary phenomena caught in a “symbiotic embrace.”

Minsky’s analysis pointed to what has become known as the Minsky moment, or the advent of financial crisis. In contrast, Sweezy’s work on financialization, which he saw as a broad trend encompassing a stream of bubble-bursting events, stressed the causal role of what could be called the “Sweezy normal state” of stagnation in mature monopolycapitalist economies. It is the Sweezy normal state and its relation to financialization with the rise of monopoly-finance capital — together with the globalized impact of these phenomena on the global South, particularly China — which forms the content of this book. 

“Why Stagnation?”

On March 27, 1947, a now legendary debate on the future of capitalism took place at Harvard University between Sweezy and Schumpeter, two of its most popular and influential economists. As Paul Samuelson was to declare decades later, in the early 1970s: “Recent events on college campuses have recalled to my inward eye one of the great happenings in my own lifetime. It took place at Harvard back in the days when giants walked the earth and Harvard Yard. Joseph Schumpeter, Harvard’s brilliant economist and social prophet, was to debate Paul Sweezy on ‘The Future of Capitalism,’ Wassily Leontief was in the chair as the moderator and the Littauer Auditorium could not accommodate the packed house.”

The debate between Sweezy and Schumpeter was part of the larger debate on stagnation in the 1930s through the early ’50s, brought on by the Great Depression. Sweezy argued on the basis of Marx and Keynes that “accumulation is the primary factor” in capitalist development, yet noted that its influence was waning. “There is no mechanism in the system,” he explained, “for adjusting investment opportunities to the way capitalists want to accumulate and no reason to suppose that if investment opportunities are inadequate capitalists will turn to consumption — quite the contrary.” Hence, the motor was removed from the capitalist economy, which tended without some external force, such as “the outside shot in the arm of a war” — toward long-run stagnation. Schumpeter, taking a more conservative and “Austrian” approach, apparently argued that a long cycle (Kondratieff) expansion might commence in the late 1950s, peaking in the late ’80s; and yet the wind was likely to go out of the sails of the U.S. economy due to the waning of the entrepreneurial function and the rise of corporations and the state. Schumpeter did not deny the stagnationist tendency of the economy but thought growth was weighed down rather than stimulated by New Deal-type intrusions in the economy.