From Finance Capitalism to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History

In this article I interpret 150 years of financial history with a focus on shifts in the role of finance in society. I argue that over time the role of finance has shifted twice from that of servant to that of master of society, and that this process has been driven by sense making through narratives that legitimized and shaped these changes. When finance became a master rent seeking, cultural capture and out-of-control financial innovation resulted in financial and social instability. Finance as a master was the characteristic of finance capitalism from around 1900–1931 and of financialization from around 1980 to today. Finance capitalism and financialization were enabled by a dominant narrative that legitimized the power of finance. The shifts in the role of finance happened when crises undermined the meaning of the existing narrative and created for a new narrative able to make sense of the crisis and point society in a new direction. This sense-making process stabilized when a new narrative was established that could explain the crisis and legitimize and shape a new role for finance. The article is based on my presidential address presented at the Business History Conference’s annual meeting in March 2014 in Frankfurt.