The financial crisis viewed through the theory of social costs

This chapter will look at the causes and consequences of the current global financial crisis, largely relying on the work of Hyman Minsky, although analyses by John Kenneth Galbraith and Thorstein Veblen of the causes of the 1930s collapse will be used to show similarities between the two crashes. K.W. Kapp's theory of social costs will be contrasted with the recently dominant efficient-markets hypothesis to provide the context for analyzing the functioning of financial institutions. It will be argued that rather than operating ‘efficiently’, the financial sector has been imposing huge costs on the economy – costs that no one can deny in the aftermath of the collapse of the economy.