Economic growth over the past 250 years is best understood as the product of a “three-player game.” In this game, the market economy and the state compete to direct the allocation of resources to new technologies—to canals and waterpower in one century, to steam and electricity in the next, and to computers after that. Financial capitalism, the third player, which includes bankers of every sort, exploits the discontinuities that inevitably arise from such focused investment. Then investors pile in, bubbles occur, crashes ensue, and a new economy is assembled, partly from the detritus of the binge. Thus, bubbles are the necessary drivers of economic progress, and financiers are the nurturers of growth, providing not just capital but crucial know-how.
Authors: David Warsh, William H. Janeway
Source: strategy+business
Subjects: Economics, Finance
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