Financial Crisis
The financial distress of the last two decades has revived interest on the question of the stability of the financial system. On the one hand, the "pessimist" view, associated primarily with Minsky argues that not only that the financial system is prone to such crises ("financial fragility" in Minsky's terms) but also that such crises are inherent on the capitalist system ("systemic fragility"). On the other hand, the monetarists see the financial system as stable and efficient where crises not only are rare but also are the fault of the government rather than the financial system as such. For many others, however, financial crises may be largely attributable to the financial system but they are also neither inescapable nor inherent in a capitalist economy.
Therefore, the issues we have to examine here are how common are such crises from a purely historical perspective; to what extent we can identify a common pattern between all crises which would suggest an endogenous process that leads to crises; a theoretical framework which explains both the process and the frequency of such crises and finally examine the extent to which these financial system characteristics that make it prone to crises are inherent on the capitalist system.
The first question, i.e. the frequency of financial crises partly depends on our definition of crisis. A financial crisis has been defined by Goldsmith as "a sharp, brief, ultra-cyclical deterioration of all or most of a group of financial indicators - short-term interest rates, asset (stock, real estate, land) prices, commercial insolvencies and failures of financial institutions". The question here is of what intensity and/or intersectoral spread should a financial disturbance be in order to be conside ...