Finance Is Not the Economy: Reviving the Conceptual Distinction

The Entrepreneurial Society

“…Equity considerations, while relevant, should take a backseat to ensuring that accumulated private wealth is mobilized and productively invested (Krippner 2005;Hudson and Bezemer 2012;Piketty et al 2013;Bezemer 2014;Bezemer and Hudson 2016). The entrepreneurial society loses out when its wealthy families become rentier dynasties, i.e., passive portfolio investors in large incumbent firms and real estate.…”

“…To maintain a competitive return on equity, the system as a whole is highly leveraged, and citizens end up investing their savings in liquid, marketable assets. These assets have a low real return because they do not finance innovative and productive ventures (Bezemer and Hudson 2016) but instead go to large incumbent firms with strong balance sheets, further entrenching the status quo.…”

“…Lower leverage implies lower returns on equity, which should lead banks' shareholders to push for higher returns on the bank's portfolio and shift credit towards riskier, but more rewarding ventures that can on average afford higher interest rates and risk premia. 10 Of course, the rates for mortgages, large corporations, and governments would also rise-but credit to these sectors of the economy is currently too cheap, arguably fueling unproductive speculative bubbles rather than productive investment (Bezemer and Hudson 2016). The gradual phasing-in of the proposal would enable banks to use retained profits to increase equity, and portfolio impacts should be closely monitored during the transition.…”

Unproductive accumulation in the USA: a new analytical framework

“…In the heterodox economics tradition the role of rentier activities has a long track record that also dates back to the original insights from classical Political Economy. More recent approaches (Bezemer and Hudson, 2016;Bezemer, Grydaki, and Zhang, 2014;Hudson and Bezemer, 2012;Hudson, 2014Hudson, , 2015Epstein, 2005) have broadened the perpspective by including empirical estimates of the adverse impacts of rentier incomes on productive activities. The role of economic rents as a cause of income inequality and stagnation has also gained substantial traction in sociology (Lin and Tomaskovic-Devey, 2013; Tomaskovic-Devey and Lin, 2011).…”

8. Statistical Testing of Regality Theory

“…Whether one subscribes to one theory or another, it is a historical fact that economic crises, crashes, and collapses occur from time to time, and that economists and politicians have been remarkably bad at predicting them. 48 46 Perez (2002Perez ( , 2010 47 Bezemer and Hudson (2016) 48 Reinhart and Rogoff (2009) Booms and busts in the twentieth century World War II was a characteristic example of the connection between economic crisis and regality. The Great Depression of the 1930s was one of the worst economic crises in modern history, and many historians believe that this crisis played an important role in the outbreak of the war.…”