How economists understand (or not) the relationship between the real and the financial economy

Kenneth Hermele
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Kenneth Hermele: Human Ecology Division, Lund University

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: Economists’ attempts to understand the relationship between the real and the financial economy, and the impact of the latter on the former, go back to the origins of economics but they have gained renewed strength with the financial crisis of 2008 and the resulting economic crisis. The relationship real-finance is variously portrayed as being non-important, mutually beneficial, or destructive, real economic activities losing out to pure speculation and wasteful consumption patterns. The various economics’ traditions takes concerning the pro- and cons of the rise of finance capital is discussed, and summarized in a table. In the process, classical and neo-classical, as well as Marxist, Neo-Schumpeterian and Ecological perspectives are discussed (and summarized in the Appendix). Three levels of the economy are investigated: the financial, the real (where production of goods and services take place) and the real-real, where the physical pre-conditions for the other two are located. The conclusion is that the various sectors cannot be understood in isolation from each other, and that some of the recipes for a resumption of healthy balance between finance and the real economy forget to anchor this vision in a clear understanding the limits to growth supplied by Ecological Economics.

Keywords: Real economy; real-real economy; fictitious capital; productive capital; neutrality of money; veil of money; bubbles; financial euphoria. Correlation Index (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-01-01
New Economics Papers: this item is included in nep-fdg, nep-hpe and nep-pke
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