Michael Perelman wrote:
> Isn't it possible to say that the basis for the crisis is in the real
> sector without being an advocate of real business cycle theory?
> Lack of
> perceived sufficient profit in real investment or in traditional
> banking
> led to an excess of financial practices that set up the credit
> cycle. Once
> the credit crunch set in, of course, it had an undeniable impact.
If, as has become the case to a significant degree, decision making in the "real sector" is aimed primarily at increasing share values, then the psychology determining these values will significantly influence these decisions.
Investment in long-lived plant and equipment won't immediately improve profits. So if, as Keynes assumes, "very few American investors buy any stock for the sake of something which is going to happen more than six months hence", the psychology dominant in the stock market will discourage such investment independent of what is happening to the expected future yield.
Moreover, the development of the market for derivatives was importantly influenced by the psychopathology underpinning the "efficient market theory" of financial markets, i.e. by the theory that starts from the absurd assumptions that the mentality dominant in these markets is fully "rational" and that it's possible using existing "information" rationally to forecast long run future yields from current investment in long-lived plant and equipment.
The psychology involved is characterized by periodic episodes of "manias, panics and crashes".
A starting point for this kind of analysis is available in Marx. It's found in the idea of the "passions". Marx himself invokes the particular nature of the capitalist "passions", the role played in them by an irrational "love of money", to explain the kind of crisis he calls a "monetary crisis".
Ted