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Type: Journal article
Title: Credit Guidance for a Desired Economy: An Original Institutional Economics Critique of Financialization
Author: McDonagh, N.
Citation: Review of Radical Political Economics, 2021; 53(4):675-693
Publisher: SAGE Publications
Issue Date: 2021
ISSN: 0486-6134
Statement of
Naoise McDonagh
Abstract: Financialization describes the turn to speculative asset trading that has become increasingly central to economic life in recent decades. Critics argue this has occurred at the expense of the “real economy,” referring to production and trade. Critics further argue that finance’s normal role is to serve the needs of the productive sector. Financialization, which diverts capital from production to speculation, is viewed as a deviant form of capitalist development. Drawing on original institutionalist insights, this article argues that such a juxtaposition of the so-called real economy versus deviant financialization is misleading. Financial speculation is a logical outcome of capitalism’s actual real economy—capital accumulation. Firms within a capitalist economy must continually engage profit-seeking practices, which in turn produces psychological habituation in agents. The latter makes profit-seeking, not production-seeking, the psychological foundation of capitalist agency, such that all legal profit-making activity is an instance of capitalism’s real economy. Prioritizing productive investment is a desired economy, an outcome that requires regulatory intervention. This paper proposes that credit guidance is a regulatory solution to financialization, one that can increase economic welfare.
Keywords: real economy; financialization; institution; habit psychology; credit guidance
Rights: © 2021 Union for Radical Political Economics
DOI: 10.1177/04866134211018867
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Appears in Collections:Aurora harvest 8
Economics publications

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