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Technological Revolutions and Financial Capi

Technological Revolutions and Financial Capital

Carlota Perez
2002
T4 216 pages · about 3h 36m to read Open Librarygoodreads

Summary

Perez, an economist working in the neo-Schumpeterian tradition, argues that technological revolutions follow a recurring pattern across roughly fifty years, and that financial bubbles are a structural part of the process rather than an aberration.

Her model identifies five revolutions since 1771: the industrial revolution, steam and railways, steel and heavy engineering, oil and mass production, and information technology. Each follows the same sequence. An installation period begins when a new technology appears, during which financial capital separates from production capital and funds the build-out speculatively. This period ends in a frenzy phase and a crash, which she argues is necessary rather than incidental because it destroys the speculative valuations, forces institutional reform, and shifts control from financial capital back to production capital. A deployment period then follows in which the technology diffuses through the whole economy, productivity gains become general, and the benefits spread. The turning point between the two is a political moment requiring institutional change, and its outcome is not determined by the technology.

She places the information technology revolution's crash in 2000 and argues that the deployment period requires institutional reforms that had not occurred, which is why the gains did not spread as previous deployments did.

The model is a pattern identified across five cases, which is a small sample fitted after the fact, and periodisation of this kind is contested among economic historians. Its value is the argument that bubbles fund infrastructure build-out that no rational allocation would, which connects directly to Janeway's account.

Key takeaways 7

  1. Technological revolutions follow a recurring pattern of roughly fifty years divided into an installation period and a deployment period.
  2. Financial bubbles are structural to the installation period rather than aberrations, because speculative capital funds infrastructure build-out that rational allocation would not.
  3. The crash that ends the installation period is necessary, since it destroys speculative valuations and shifts control from financial capital back to production capital.
  4. The turning point between installation and deployment requires institutional and regulatory change, and its outcome is political rather than technological.
  5. Productivity gains from a technology spread through the whole economy only during the deployment period, decades after the technology appears.
  6. Each revolution establishes a new common sense about best practice that then constrains what firms in every industry consider possible.
  7. The model rests on five cases fitted after the fact, which makes the periodisation a hypothesis rather than an established regularity.

Who should read it

Investors and strategists who want a framework connecting technology cycles, financial bubbles and the institutional conditions for diffusion.

Who recommended it 2 · 2 direct

“Perhaps the best book on the topic is Carlota Perez, Technological Revolutions and Financial Capital”

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Murray N. Rothbard · 1963

The Austrian account of 1929 and the policy response that followed

Where it sits in the reference 3

Mental models
Financial panics
Economics

Topics

Financial HistoryTechnology and ComputingEconomicsTech strategy and platform economics