Abstract

The essays in this volume explain the key structural features of financial inflation that give rise to financial crisis. These features include excessive reliance on finance to maintain economic activity through rising asset prices. Reliance on asset inflation induces a preoccupation with property values and a new social divide between the asset-rich and the asset-poor that undermines the culture of the welfare state. When debt can no longer be supported by cash flow from asset markets, excess debt plunges economies into economic depression.

'Jan Toporowski is the best-kept secret in British economics. His insightful essays combine insight into current market mechanisms and macroeconomic dynamics with a keen appreciation of the historical sources of the ideas being debated in today’s financial pages. This book explains Toporowski’s ground-breaking theory of financial inflation, which is the key to understanding why financial-market forces ultimately exploded. In sum, this book answers questions readers didn’t know they had about the 2007-08 financial crisis and about all the financial crises in the neoliberal era.' —Gary Dymski, Professor of Economics, University of California, Riverside

The essays in this volume explain how financial inflation shifts banking and financial markets towards more speculative activity, changing the financial structure of the economy and corroding the social and political values that underlie welfare state capitalism. The essays begin with an article that was published in the Financial Times that highlights the problems of excess debt, which emerges when financial inflation exceeds the rate at which prices and incomes are rising.

Subsequent essays examine the consequences of this for money and international financial, and for financial and accounting techniques such as financial innovation, goodwill and leverage. Among them are critical essays on the role that finance theory has played in covering up the problems caused by finance. These include a portrait of the pioneer of modern finance theorist Fischer Black. Further essays discuss the role of finance in economic inequality, fostering a new political, social and economic divide between the asset-rich and the asset-poor as the housing market (and asset markets in general) become the new 'welfare state of the middle classes'.

A final group of essays looks at how financial inflation finally broke down and financial crisis broke out. A previously unpublished essay examines the limitations of central banks in securing financial stability, while two concluding essays discuss the role of international business in transmitting the crisis around the world, and how developing countries become affected by the crisis.

'Jan Toporowski offers a lively and engaging critical assessment of national and international financial problems. He writes clearly, in non-technical language, and explores the economic, historical, political, cultural and symbolic significance of finance. Anyone with a serious interest in the “great recession” that began in 2007 will benefit from reading this book.' —John King, Professor of Economics, La Trobe University

'Offers a uniquely systemic and historically aware insight into the structural, institutional, socio-political and cultural origins of financial instability associated with the rise of global finance... A sharp and comprehensive critique of the financial orthodoxy that is behind many myths of contemporary economics and political economy.' —Anastasia Nesvetailova, Department of International Politics, School of Social Sciences, City University London

'In these essays Jan Toporowski demonstrates his characteristic ability to combine analytical insights with policy relevant commentary on a range of topics associated with financial inflation and with banking and financial crises. Directed at a non-technical audience, the discussions offer a lesson in rigor, clarity and conciseness. The breadth of knowledge is impressive and the resulting analyses always telling and thought provoking. A book to be highly recommended.' —Grahame F. Thompson, Professor of Political Economy, The Open University and Visiting Professor at the Copenhagen Business School

Jan Toporowski is Reader in Economics and Chair of the Economics Department at the School of Oriental and African Studies, University of London. He studied Economics at Birkbeck College, University of London and at the University of Birmingham. Jan Toporowski has worked in fund management, international banking and central banking.