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The Schumpeterian role of financial innovations in the New Economy's business cycle

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  • Charles G. Leathers
  • J. Patrick Raines

Abstract

Alan Greenspan claims that modern financial innovations, especially financial derivatives, were major contributors to a Schumpeterian process of 'creative destruction' which produced a high-growth 'New Economy' and opposes their regulation. A different perspective emerges when it is recognised that the 'New Economy' followed the general contours of a Schumpeterian business cycle, and the role of modern financial innovations is examined in that context. The authors argue that the primary role of financial derivatives has been in contributing to 'reckless finance' and speculative excesses in the second phase of that cycle, and that Schumpeter would favour subjecting the use of derivatives to more regulation. Copyright 2004, Oxford University Press.

Suggested Citation

  • Charles G. Leathers & J. Patrick Raines, 2004. "The Schumpeterian role of financial innovations in the New Economy's business cycle," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(5), pages 667-681, September.
    • Handle: RePEc:oup:cambje:v:28:y:2004:i:5:p:667-681
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    File URL: http://hdl.handle.net/10.1093/cje/beh033
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    Cited by:

    1. Tamer Khraisha & Keren Arthur, 2018. "Can we have a general theory of financial innovation processes? A conceptual review," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-27, December.
    2. Ionut PURICA & Liviu Lucian ALBU & Marioara IORDAN & Sorin DINU, 2020. "Models for Nonlinear Decisions Overview and Two Case Examples in Finance and Energy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 194-201, July.
    3. Bezemer, Dirk J., 2010. "Understanding financial crisis through accounting models," Accounting, Organizations and Society, Elsevier, vol. 35(7), pages 676-688, October.
    4. Jan Toporowski, 2013. "The Elgar Companion to Hyman Minsky," Review of Political Economy, Taylor & Francis Journals, vol. 25(1), pages 175-177, January.
    5. S. Dow, 2010. "The Psychology of Financial Markets: Keynes, Minsky and Emotional Finance," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 1.
    6. Mark Knell, 2015. "Schumpeter, Minsky and the financial instability hypothesis," Journal of Evolutionary Economics, Springer, vol. 25(1), pages 293-310, January.
    7. Hasan Cömert & Gerald Epstein, 2016. "Finansal Yenilik Yazinindaki Son Gelismeler," STPS Working Papers 1604, STPS - Science and Technology Policy Studies Center, Middle East Technical University, revised Jan 2016.

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