Political Economy Analysis Of Financial Instability

The occurrence of the international financial crisis in 2008 caused government regulators and academia to reflect on the instability of the financial system and the relationship between finance and macroeconomics,and began to widely question whether mature economies with developed financial markets can naturally achieve self-balancing.this view.This forces people to abandon the traditional perspective of external shocks to explain financial instability,and more to explain the ongoing financial crises from the perspective of internal causes,that is,from the economic operation itself.Minsky’s "financial instability" hypothesis came into being in the context of this era,and has received more and more mainstream attention.According to Minsky’s theory,the profitable opportunities offered by boom times will prompt more and more operators to engage in speculative or Ponzi finance,thereby transforming a sound financial system into a fragile one.However,the problem is that Minsky’s theory of financial instability is a micro-level analysis,and its temporary explanation for production expansion and contraction only exists in financial markets,especially financial market participants and managers’ optimism is regarded as financial The source of instability,underscoring that Minsky’s theory has no financially unstable sector based on real production.This view of financial instability separated from production is contrary to Marx’s view that financial crises are the inevitable result of the basic contradictions of capitalism.Although it explains the financial crisis including the subprime mortgage crisis to a certain extent,it actually separates the The deep connection between finance and economy conceals the fundamental contradictions of capitalism advocated by Marx.However,although Marx himself had long ago made an abstract discussion on the generation,development process and basic principles of currency credit,and put forward the duality assertion that the credit system accelerated economic expansion on the one hand,and brought instability on the other hand,However,there is no in-depth analysis of the mechanism of this instability,nor a relatively standardized and complete financial cycle theory(Jack Rasmus,2008),which leads some Marx scholars to believe that Marx’s monetary theory is in terms of details and complexity.is incomplete and opaque(Andrew B.Trigg,2021).In response to the above problems,this paper,on the basis of Marxist dialectical materialism,studies the mechanism of financial instability and the relationship between financial development and economic operation under the paradigm of Marxist economics by constructing a model based on the credit cycle.It is found that under different levels of financial development,the response of output to shocks is non-linear,because the capital concentration and capital redistribution mechanism in the process of financial development and its dynamic and static effects are amplified from two levels of time and space.shocks to the economic system.And through the duality analysis of the two mechanisms of financial instability,it is pointed out that under the condition of constant technology,the relaxation of financing constraints leads to an increase in the composition of capital,which is the fundamental form of financial instability endogenous to the capitalist production process.It is also the main channel for combining the financial mechanism with the realistic mechanism.The main contents are as follows:First,it sorts out and summarizes the early thoughts on financial instability including neoclassicalism,Minsky’s hypothesis of financial instability,and Marx’s discourse on financial instability,and analyzes the advantages and disadvantages of their theories,especially for Ming A comparative analysis of the theories of financial and economic crises between Scyth and Marx on financial instability points out that the two theories on financial and economic crises have some fairly significant points in common,that is,they both confirm the inherent contradictions and contradictions inherent in the financial system itself during the operation of the capitalist system.It also criticizes Minsky’s view of financial instability as a purely financial problem from a Marxist perspective.Second,after analyzing the necessary conditions for the credit mechanism to change from "form possibility of crisis" to actual crisis,a credit cycle model is constructed,and financial development parameters are introduced to simulate the ideal situation of credit operation in a market economy environment.Through the analysis of the impulse response of the model under steady state and under shock,it is first found that financial development under steady state promotes the increase of output,consumption and investment,and at the same time increases the elasticity of output to shock.The impact magnification differs significantly.Then,under the framework of Marxist economics,the mechanism of this growth and shock amplification effect is analyzed,and it is proposed that capital concentration and capital redistribution in the process of financial development are the most basic correlation mechanisms between financial development and economic operation,and finally establish financial instability.The crisis framework pointed out that in the process of capital accumulation,the free development of finance will lead to the imbalance of capital composition ratio under the action of credit mechanism.Third,in order to verify the view that financial development will lead to an increase in capital composition,a mediation effect model is constructed using Chinese micro-enterprise data to test and analyze financing constraints and whether financial development has a restrictive effect on the improvement of capital composition of Chinese enterprises and the possible reasons behind it.mechanism of action.The study found that the level of financial development has a significant positive impact on the capital composition of enterprises,that is,the deepening development of finance can effectively promote the expansion of the scale of constant capital of enterprises.The effect of background production is stronger.Further extended analysis shows that financial development also promotes corporate financialization.In order to control endogeneity,this paper uses lagged variables and instrumental variables to test,and the results are consistent with the main regression.Fourth,on the basis of demonstrating the intrinsically unstable relationship between financial development and the existence of macroeconomics,by analyzing the logical starting point of financial instability: the duality of the credit system,this relationship is extended to the interaction between financial instability and economic crisis.analytically.Secondly,through the characterization of the evolution of capital accumulation forms under financial instability,it analyzes the interaction mechanism between different types of capital to realize the accumulation process under the condition of continuous financial development,and reveals the relationship between different types of capital and the financial development trend.The transformation process of capital accumulation from industrialization to creditization to financial accumulation.Fifth,it studies the regulation of the financial system under financial instability.On the basis of analyzing the characteristics and facts of China’s credit and financial supervision,it is concluded that the transformation of the economic growth model,the government-led financial system,the potential asset bubble,and the financing structure will all constitute the hidden danger of financial instability.And by studying the historical changes of China’s credit and financial supervision,combined with the development and reform of foreign financial supervision,it is emphasized that if supervision is weak or there are institutional loopholes,the deepening development of the financial and credit system will instead exacerbate the volatility of the real economy.The main innovations of this paper are:First,through the construction of financial instability under the framework of Marxist economics,it is pointed out that under the condition of constant technology,financial development and credit system expansion will lead to an increase in constant capital relative to variable capital.Financial development improves capital composition through credit expansion,which is the logic of financial instability in which financial development affects economic structure.It not only responded to some scholars’ criticism of the incompleteness of Marx’s monetary theory,but also enriched Marx’s crisis theory by pushing up capital composition through financial development.Second,through the analysis of the endogenous nature of financial instability,it is concluded that financial instability obtains endogenous power from the process of capital accumulation or expanded reproduction,which is an exposition of the endogenous nature of financial instability from the perspective of Marx’s theory.At the same time,financial instability rooted in production factors is the biggest difference from Minsky’s hypothesis of financial instability.The development of productive forces is both the cause and the result of financial instability.Speculative frenzy is only an external manifestation of instability.Third,through the analysis of the changes in the form of capital accumulation caused by financial development,an analytical framework for financial instability and capital accumulation has been established.Association Framework.The way of capital accumulation caused by financial development presents a transition process from capital industrialization accumulation→capital credit accumulation→capital financial accumulation.This change in the form of capital accumulation is essentially the use of financial tools for capital to achieve its own transcendence of restrictions in production and circulation.At the same time,in this attempt to overcome its own restrictions,the dependence on financial tools leads to the continuous improvement of capital composition.,further amplifying and strengthening the financial logic of the crisis.Fourth,the methodology.Combining Marxist economics with the theoretical model of dynamic general equilibrium,by constructing a credit cycle model,and analyzing the impulse response of the model under steady state and shock,it is found that financial development under steady state promotes the increase of output,consumption and investment,while at the same time It increases the elasticity of output to shocks,confirming that the credit mechanism is an important factor in the evolution of financial instability into systemic risk.In the process of empirical analysis,the two-way fixed effect is used to construct an econometric model of financial development and capital composition.Based on the use of micro-data of enterprises,it is found that the level of financial development has a significant positive impact on the capital composition of enterprises,which is improved and enriched from an empirical perspective.Research on Marx’s theory of capital composition.