Financial manias and panics: a socioeconomic perspective

American Journal of Economics and Sociology, The,  Oct, 2002  by Brenda Spotton Visano

• E-mail
• Print
• Link

(3.) The ideas proposed in this paper fit comfortably within that group of theories of asset-price instability I have earlier labeled "heterodox." For a comparison of the major disparities between orthodox "efficient markets" theories of asset-price instability and those broadly labeled heterodox, see Spotton and Rowley (1998). There, we demonstrate "the wide divergence between the foci of the two groups, their methods, conclusions, and implications" (1998:684).

(4.) For an exploration of the "troublesome integration of probability and uncertainty in economics" and a historical overview of those contributions that identify the main features and qualifications of probabilistic models, see Hamouda and Rowley (2996). See Davidson (1996) for a discussion and critic's assessment of the macroeconomic and policy implications of the ergodicity assumption.

(5.) Post-Keynesians tend to rely on the fatalistic notion of "animal spirits" to explain varying intensities of speculative investment activity. See Davidson (1991), for example.

(6.) In this way, the argument in this paper displays elements reminiscent of the Kondratieff (1935) long wave and leading sectors in growth of the type developed further by Schumpeter (1939), clarified and examined by Rostow (1975). I do not, however, extend the analysis to consider the potential cyclical nature of such phenomena except to say that in one important sense the ideas presented here sit in opposition to the notion that a long wave cycle exists. The existence of a cycle--even one of 50 years in average length--is consistent with an economic process that may well be ergodic over a longer time horizon. The notion of uncertainty, on which the ideas here are based, derives from an argument that presumes a nonergodic world.

(7.) The history of economic development attributes the impulse to change as stemming from physical changes affecting the manufacturing process; these may be the discovery of a new market for input or output or a new product that in turn creates new markets and alters the vector of relative prices. The history of technical invention as the source of a new product tends to focus on the economy of energy, interpreting technical change as one motivated and promoted by the continual search for more efficient and cheaper sources of power in the most limited, physical sense. What is proposed here is the broadening of the definition of innovation to include institutional innovations--such as the introduction of the joint-stock company--that occur in the absence of any physical invention but nevertheless prove revolutionary in impact.

(8.) The time lag between the initial invention that later proves revolutionary and its attendant innovation may be substantial. Watt's patent on the first steam engine preceded England's railway boom of the 1840s by some 70 years. A similar boom in the United States was delayed by another 10 or so years. In 1896, Marconi patented the first radio, but it was not until the 1920s that this innovation was familiar to many. The contemporaneous innovations of the television and the automobile share a similar temporal history. As one final example, although the universal computer had its origins in the early 1940s computational aids, it was not until the idea had evolved into a machine for personal use in the 1980s that the most recent of revolutionary innovations in information communications began.