ABSTRACT
An understanding of modern capitalism requires comprehension of money, credit, and finance since they represent its defining features. This is especially true in a relatively deregulated environment when money and credit take on a life of their own. Historically, businesses, the rich, and governments were the principal agents of finance capital. But more recently, the lower-middle class and even some working-class households have become more involved with financial assets and portfolios. When speculative bubbles dominate the economy more people join the circus, and when they crash many people lose, so fewer households become involved in this risky business. Political economy perspectives of money and credit are distinctive from traditional economics in that the former seek to be realistic, institutional, historical, and systemic in their methodology. They are realistic since they develop a Wall Street perspective on the financial system, where cash flow and net worth are a critical part of the edifice (Dillard 1987). Successive institutional changes are embedded into the theory, so knowledge becomes relevant to changes in the real economy. The analysis is historical as different phases of evolution are delineated through time as hysteresis and path dependence impact the economy. Central to the political economy perspective is to link the financial system to the workings of the capitalist system, where capitalism represents complex, longterm investments in productive structures of factories, warehouses, machinery, organizations, and human capital. Several schools of thought contribute to the political economy view of money, including neo-Marxian, Schumpeterian, institutional, and post-Keynesian. NeoMarxian contributions emphasize the circuit of money capital, fictitious capital, and the break-up of surplus value into profit, interest, and rent. Schumpeterian perspectives emphasize the role of credit-money in financing innovation or its use for general accumulation or speculation. Institutional themes include the financial instability hypothesis and social structures of accumulation. And postKeynesian approaches recognize the role of uncertainty in complex capital investments plus the role of endogenous finance. The political economy approaches complement each other while acknowledging the core contradiction of industry versus finance and the need for a dynamic, circuitous vision of finance capitalism (Lavoie 1992).
