Book Review: Technological Revolutions and Financial Capital

What you get from Technological Revolutions and Financial Capital is an explanation of how new technologies and the resulting changes in society and business (esp. finance) create cyclical 40-60 year boom, bust, and the thriving cycle.

The valuable part isn’t pointing out that there’s a cycle, but rather collecting together the lengthy cause and effect chain of various cycles of time. The account of how financing (that is, how money “seeks” to fund innovation and then “make money from money,” or “rent-seeking” as the kids like to say) is especially interesting. There’s a distinction between “production capital” (money used by companies to create profit by creating/doing some business in goods or services) and “financial capital” (“banks” and investors who seek to “make money from money,” not by producing something) that’s an especially helpful framing to pound into your head. For example, in this later passage, you get a sense of when each type of money “wants” to invest in business:

In the economy, the interrelations between financial and production capital determine the rhythm and the direction of each technological revolution. Financial capital enables the succession of surges. When production capital at the end of a surge becomes conservative, due to having so much investment and experience tired to it, financial capital will break loose and end up either helping the initial big-bang of the next revolution or following it up by backing the new entrepreneurs in spreading it. When financial capital, during the person of installation of a new paradigm, take the economy on a frenzied ride up a paper-wealth bubble, the new modernized production capital will be ready to take over and lead a more orderly growth process, in the “golden age” that sees the full deployment of that revolution.

As with any pattern/model, I have a dangerous urge to fractal down the cycles from 40-60ish year cycles to 10 years or less as a way to model point innovations. It’s probably a bad idea if precision is desired, but as far as describing what otherwise could look like chaos, it might be handy.

All that said, this book is hard as shit to read. I had to start over ¼ through because I’d let too much time elapse between readings.

The last passage is from June 2002, and I’d be eager to see the author’s current WTF analysis on the world economy.

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