Table of contents

A. The entrepreneur and the banker

B. The double character of routines as obstacles and guides
for innovation

C. Techno-economic paradigms as the meta-routines for a long period

D. Production and financial capital: different and complementary agents

E. Technological revolutions and great surges of development

F. The sequence of diffusion of each technological revolution

G. Why technical change occurs by revolutions

Embedded paradigms as inclusion-exclusion mechanisms
Exhaustion of opportunity trajectories leading idle money to search elsewhere
The role of finance in fostering the new paradigm
An endogenous process with a specific rhythm

H. Financial bubbles as massive processes of credit creation

The power of finance backing the paradigm shift
The making of the bubble
When the job is done, it's time for the changeover in leadership

I. Summary and Conclusion

Finance and paradigm shifts
Clusters of bold financiers and the invisible hand for credit creation
The research ahead

Bibliography

 

Introduction

Ever since Kuznets published his review of Business Cycles questioning the sudden clustering of entrepreneurial talent that was supposed to accompany each technological revolution, Schumpeter's followers have felt uneasy about this unexplained feature of his model. Yet apparently no one has stopped to question Schumpeter's treatment of the clustering of 'wildcat or reckless banking', dismissing it as a random and unnecessary phenomenon to be excluded from his model, together with speculative manias.
Keeping Schumpeter's basic assumptions about innovations based on credit creation as the force behind capitalist dynamics, this chapter will present an alternative model of the process of propagation of technological revolutions. On that basis it will propose:
a) An explanation of the clustering and the spacing of technical change in successive revolutions;
b) An argument for the recurrence of clusters of bold financiers together with clusters of production entrepreneurs and
c) An interpretation of major financial bubbles as massive episodes of credit creation, associated with the process of assimilation of each technological revolution
The model is a stylized narrative, based on a historically recurring sequence of phases in the diffusion of each technological revolution, from its visible irruption after a long period of gestation, through its assimilation by the economic and social system to the exhaustion of its innovation potential at maturity. But it is not merely descriptive. It is constructed through the identification of possible causal chains between agents and spheres in capitalist society. What the model attempts to do is identify the repetition of certain underlying patterns and to propose plausible explanations. The reader is asked to keep this purpose in mind, together with the additional caveat that neither the evidence nor much subtlety can be included in the limited space of a chapter. Suffice it to say that this model is not a straitjacket to be forced upon history. Rather than ignore the immense richness of historical evolution, it emphasizes the uniqueness of each occurrence and recognizes the many irregularities and overlaps that cannot be captured by abstraction. Its only claim is to serve as a useful heuristic tool for historical exploration and as a framework for theoretical analysis.