Financial Crises and the Evolution of Capitalism: The Crash of’87 — What Does it Mean?

Abstract

The world-wide crash of financial markets on 19 and 20 October 1987 furnishes prima facie evidence that modern capitalist economies, which are characterised by complex, sophisticated and ever evolving financial structures, are by their very nature endogenously unstable. The crash and its aftermath also show that the structures of intervention and control that emerged over the decades since the Great Depression of the 1930s are able to contain the endogenous processes that in earlier times brought on great and serious depressions. As a result of the successful containment of instability, the evolution of capitalism in the main capitalist economies has been dominated by the result of government and market adjustments to isolated or contained crises, that take place within an on the whole adequately performing system, rather than by market participants and government reactions to overriding crises and failed performance. One need but note that Thatcherism survived a full term of deindustrialisation and unconscionable unemployment, mainly because welfare state transfers sustained the Andy Capp’s of Britain at a tolerable standard, to recognise that the evolutionary dynamics of capitalism has changed.

A prior version of this paper was presented at a session on ‘The Crash of ’87 — What Does It Mean? that was arranged by URPE at the Applied Social Science Association’s Meeting in Chicago Ill. on Tuesday, 29 December 1987.