Theorizing the process of financialization through the paradox of profit: the credit-debt reproduction mechanism

Farzad Javidanrad, Robert Ackrill, Dimitrios Bakas and Dean Garratt

Journal of Post Keynesian Economics, 2024, vol. 47, issue 3, 566-588

Abstract: Financialization occurs where, over time, capitalist economies undergo a transformation, with profit-making via investment in production declining, to be replaced by profit-making via investment in financial markets. In the present research, we offer a novel theoretical explanation for this process, that we call the credit-debt reproduction mechanism. We derive this inductively, starting with Marx’s analysis of the paradox of monetary profit and its practical manifestation in the capitalist economy, the shortage of money in circulation. This shortage results in capital becoming increasingly expensive, making long-term investment decisions less certain, less profitable and less justifiable. Investment in financial markets grows, but this leads to an ever-expanding cycle of credit and debt, which puts capitalist economies on a one-way road from productive investments to predominantly unproductive investments. We include in this analysis important reflections on the distinction between “financialization” and “financial development.” We also revive and revisit the notion of the shortage of money as a key driver in this process. Another contribution made in this research is to draw a distinction between practical and theoretical solutions to the paradox of monetary profit. Crucially, our research confirms the absence of a theoretical solution to the paradox, there existing only practical solutions.

Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/01603477.2024.2327998 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:47:y:2024:i:3:p:566-588

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MPKE20

DOI: 10.1080/01603477.2024.2327998

Access Statistics for this article

More articles in Journal of Post Keynesian Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().