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Financialization, Crisis, and the Development of Capitalism in the USA
Abstract
This article evaluates the contrasting approaches to the relationship among changes in the rate of profit, financialization, and crisis embodied in macrohistorical sociology and international political economy, and situates the financial crisis of 2008 in historical context, with US data from 1929–2008 as the core of the empirical analysis. While this article finds no correlation between either (1) the rate of profit and inflation or (2) cash assets of firms and economic decline, this article does find a correlation between a decline in the rate of profit and the advent of crisis. This article also presents evidence that dovetails with the proposition that crisis is associated with and follows financialization. The findings lend support to the Wallerstein–Arrighi hypothesis that within the context of capitalist hegemonic cycles, a decline in the rate of profit engenders an increase in the cash assets of firms, leading to financialization and, in association with other mechanisms, systemic crisis.
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Notes
Taxes are subtracted from this measure, but it is otherwise unadjusted. In the Appendix, we calculate and evaluate eight alternate measures of the rate of profit, adjusting for depreciation, net interest, and indirect business taxes.
The emphasis on the rate of profit instead of inflation is a reaction to debates between modernization theorists and dependency theorists, more specifically that between economists Walt Rostow and Ernest Mandel about what characterizes A-phases and B-phases of Kondratieff cycles (Wallerstein 1979b, 664).
Short-term investments typically consist of less than a day to a week. These types of investments or loans are ways for companies to clear assets from their balance sheets to avoid taxes and regulations for companies with assets exceeding a certain threshold.