On the Inevitability of Economic Crises in the Modern Market Economy

О неизбежности экономических кризисов в современной развитой рыночной экономике

Burenin, Aleksey N. (Буренин, Алексей) ()
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Burenin, Aleksey N. (Буренин, Алексей): Moscow State Institute of International Relations

Ekonomicheskaya Politika / Economic Policy, 2017, vol. 5, 8-21

Abstract: This article examines the problem of the modern market economy crises. As part of the analysis, the author shows that an unlimited credit expansion stimulated by financial innovations and the natural desire of most people to improve their well-being periodically lead to debt overburdening of economy. Credit relations mediate the entire reproduction process and thus a violation in one of its links provokes negative consequences for the economy and inevitably leads to an economic crisis. At the beginning of an economic cycle, interest rates are low, and economic agents actively take loans. General optimism is supported by new loans. The situation changes when the economy approaches a boom phase. Credit chains take form of a real web permeating the entire economic organism. At the peak of the economic boom, the credit load reaches a critical level, a trigger is released, and a crisis begins. The function of the trigger belongs to the actions of economic agents in the market where the financial bubble was formed. In previous economic systems, credit was limited to a relatively narrow framework, so that a new pattern of economic functioning that inevitably leads to crises could form on its basis. Only capitalism, with its innovative nature, opens access to credit for almost any household and firm. Credit has creative power because in a short time it allows to get the necessary resources to finance large-scale projects, but it creates a threat to economic stability in the country if it reaches a very large scale. Our analysis brings us to a conclusion that it is impossible to solve the problem of crises, because capitalism makes maximal use of loans as a means of stimulating household consumption and financial innovations provide manifold possibilities for this on an ever-increasing scale.

Keywords: credit; economic crisis; Austrian school. (search for similar items in EconPapers)
JEL-codes: E32 E44 G1 (search for similar items in EconPapers)
Date: 2017
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