A History of Financialization

Analyzing long-cycle patterns during the twentieth century, this book presents novel findings on how core features of financialization are interconnected across advanced economies. It proposes that, since the late nineteenth century, international macroeconomic policy regimes have favored either capital or labor, giving rise to corresponding cycles of financialization and de-financialization: a liberal phase of financialization (1896–1929), a regulated phase of de-financialization (1946–1973), and a neoliberal phase of financialization (1983–2019). The book argues that these cycles can be explained through underconsumption theory in 13 advanced economies. During financialization, the study suggests inequality created a savings glut that stimulated liquidity for credit expansion, which in turn led to financial instability. Meanwhile, the lack of aggregate demand due to inequality depressed economic growth. By contrast, during the de-financialization of the regulated Bretton Woods era, credit formation did not lead to financial crises, and economic growth was high. Nevertheless, both the liberal and regulated phases succumbed to structural crises caused by internal frictions. These crises transformed not only the economy, but also the political landscape – and at times, even democracy itself. The question remains whether the neoliberal regime is also undergoing an existential crisis, and what lessons we can learn from history to avoid the pitfalls ahead. The book is primarily aimed at scholars and students of global political economy.