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Is a CFA® Charterholder and founder of A site devoted to helping people integrate cryptoassets into their investment portfolios. The CFA designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.

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Notes – Technological Revolutions and Financial Capital

I recently read Technological Revolutions and Financial Capital by Carlota Perez. I plan to write a series of articles relating the books in-depth research on how technology develops and diffuses throughout the economy to my thinking on cryptoasset investing. The book is widely applicable to thinking about the how technology impacts economic growth though. So I thought the notes I put together to fuel my forthcoming articles might be of interest. In their raw and unedited glory below.

5) This book holds that the sequence technological revolution-financial bubble-collapse-golden age-political unrest recurs about every half century and is based on causal mechanisms that arc in the nature or capitalism. These mechanisms stem from three features of the system, which interact with and influence one another:

1. the fact that technological change occurs by clusters of radical innovations forming successive and distinct revolutions that modernize the whole productive structure;
2. the functional separation between financial and production capital, each pursuing profits by different means; and
3. the much greater inertia and resistance to change of the socio-institutional framework in comparison with the techno-economic sphere, which is spurred by competitive pressures.

7) techno-economic paradigm, which stands for the new ‘common sense’ guiding the diffusion of each revolution. The other is great surge of development, which represents the process of installation and deployment of each revolution and its paradigm in the economic and social system.

8) A technological revolution can be defined as a powerful and highly visible cluster of new and dynamic technologies, products and industries, capable of bringing about an upheaval in the whole fabric of the economy and of propelling a long-term upsurge of development. It is a strongly interrelated constellation of technical innovations, generally including an important all-pervasive low-cost input, often a source of energy. sometimes a crucial material, plus significant new products and processes and a new infrastructure. The latter usually changes the frontier in speed and reliability of transportation and communications, while drastically reducing their cost.


13) It is often the interlinking of some of the new and some of the old that generates the revolutionary potential. In fact, many of the products and industries coming together into the new constellation had already existed for some time, either in a relatively minor economic role or as important complements for the prevailing industries.

Electronics existed since the early 1900s and in some ways was crucial in the 1920s; transistors, semiconductors, computers and controls were already important technologies in the 1960s and even earlier. Yet it is only in 1971, with the microprocessor, that the vast new potential of cheap microelectronics is made visible· the notion of ‘a computer on a chip’ flares the imagination and all the relaxed technologies of the information revolution come together into a powerful cluster.

15) A. techno-economic paradigm is, then, a best-practice model made up of a set of all-pervasive generic technological and organizational principles, which represent the most effective way of applying a particular technological revolution and of using it for modernizing and rejuvenating the whole of the economy. When generally adopted, these principles become the common-sense basis for organizing any activity and for structuring any institution.

20) bringing to fruition the wealth-generating forces of each new paradigm requires massive and matching changes in the patterns of investment, in the organizational models for maximum efficiency, in the mental maps of all the social actors and in the institutions that regulate and enable the economic and social processes.

23) Each technological revolution is received as a shock, and its diffusion encounters powerful resistance both in the established institutions and in people themselves.

24) Thus, each technological revolution brings with-it, not only a full revamping of the productive structure but eventually also a transformation of the institutions of governance, of society and even of ideologies and culture, so deep that one can speak about the construction of successive and different modes of growth in the history of capitalism.

27) the great clusters of talent come forth after the revolution is visible-and because it is visible.

28) Once the valid trajectories for new products and processes as well as for their improvement arc known, successive and successful innovations will follow. They will be compatible among themselves, they will interact smoothly, they will find the required supplies, qualified personnel and market channels and will encounter increasing social acceptance based on learning with the previous products.

31) The core industries of the technological revolution. now maturing, are reaping the last benefits of economies of scale and are probably tied up with huge fixed investment. They are also likely to be m a very strong position (oligopoly or near-monopoly), (FANGs)

33) tie exhaustion of a paradigm brings with it both the need for radical entrepreneurship and the idle capital to take the high risks of trial and error.

39) Thus, the irruption of the technological revolution also signals a cleavage in the fabric of the economy along several lines of tension:

• between the new industries and the mature ones;
• between the modern firms -whether new or upgraded by the new methods -and the firms that slay attached to the old ways;
• regionally, between the strongholds of the now old industries and the new spaces occupied or favored by the new industries;
• in capabilities, between those that are trained to participate in the new technologies and those whose skills become increasingly obsolete;
• in the working population, between those that work in the modem firms or live in the dynamic regions and those that remain in the stagnant ones and are threatened with unemployment or       uncertain incomes;
• structurally, between the thriving new industries and the old regulatory system, and
• internationally, between the fortunes of those countries that ride the wave of the new technologies and those that are left behind. 52) The imbalances between the profile of potential production and that of existing demand lead to premature market saturation and become an increasing obstacle to growth. The social unrest and the indignation at injustice that had begun to manifest themselves during Frenzy hang over decision makers. The hard conditions that were already present for the poor worsen considerably after the collapse and can turn to desperation and anger.


65) Great surges, however, are better described as consisting of six, rather than four phases. The first one would be gestation, or the time of preparation for irruption, which is of indefinite duration. Then would come the four being discussed here, which characterize diffusion in the core countries. Finally, the last phase would be the time of stretching and spreading to successive peripheries. In that final period, the last possibilities offered by the prevailing paradigm serve to propaga1e capitalism across the world. But those two later phases take place in parallel with the first two of the next technological
revolution. So each great surge rolls out to the periphery supporting development with the last wealth-producing capacities of its mature technologies, meeting at the end its final defeat (or transformation) by the new paradigm.

72) while financial capital can choose widely how to invest its money, avoiding or withdrawing from risks which it deems too high for the likely returns, most agents of production capital are in path-dependent situations and must find alternative actions within a limited range, often needing to lure financial capital or face failure.


90) Apply to crypto The beginning of each great surge has been identified here with the irruption of a technological revolution and, for practical purposes, the birth has been dated al a single symbolic event -which represents the big-bang of that potential universe of opportunities. Bui obviously such discontinuities can only be really identified with hindsight. The initial events occur in restricted spaces. As seen by most contemporaries, even if they often make front-page news, their multiple implications are visible mainly to an entrepreneurial minority.

91) Huge successes, incredible rates of growth and even more incredible profit margins become potent magnets for the still looming quantities of idle capita1what ensues can best be described as an infatuation, as a passionate love affair of financial capital with the technological revolution. Idle money rapidly engages in the enthusiastic backing of the new industries and their entrepreneurs; the financial and banking worlds jump to the quick adoption of modernizing innovations for their own operations.

By definition a technological revolution implies risk. Products are new, processes are being tested, markets are unknown, consumers are unaccustomed, and supplies are not guaranteed. Although radical breakthroughs often require relatively small amounts of capital, especially compared with the huge amounts required by most technologies reaching maturity and economies of scale, there are nonetheless many new entrepreneurs and many successive and parallel innovations all vying for success and looking for money.

So, the most salient characteristic of these times· of revolutionary breakthroughs and multiple trial and error applications is also an innovative attitude in the creation of risk capital instruments on the part of financial capital

95) Crypto’s fit in knowledge age Thus the old core firms, because they need it and are able to· afford it, become important test beds for many of the innovations of the technological revolution, in particular, those that are generic and can help modernize the rest of existing activities. They then unwillingly become agents in the construction, diffusion and installation of the new techno-economic paradigm. But the most demanding test bed of the technological revolution is the financial world itself, always ready to increase the speed of transactions and to expand their range. By becoming one of the most willing and daring clients for its products and services, financial capital propels each technological revolution in an indirect but extremely important way.

Among the technological, infrastructural and organizational innovations of each paradigm, there are those that accelerate the transport and transmission of goods and information. These can usually serve in tum as a source of innovation in money, banking and the financial sector itself Perhaps because of the close links and early contact of financial agents with the new entrepreneurs, there is very rapid take-up of any form of communication that will facilitate the !low and 1or increase the fluidity, speed or security of money, banking, credit, finance and so on

100) financial capital, after having introduced many innovations in support and application of the technological revolution, has learned to create new instruments and-to overcome the old mental blocks. So, when the imagination of financiers, the young and the veterans, is put to the task of making money from money, a whole range of purely financial, speculative instruments are invented or reinvented and applied to make more wealth out of existing wealth. Most means arc legal, though not always legitimate: some arc even illegal

133) What makes the Synergy prosperity an em of good feeling is its tendency to encompass greater and greater parts of the economy and larger and larger parts of society in the benefits of growth

the range of sectors that support growth and need financing in this phase encompasses:

• the core industries of the paradigm, which are still growing, advancing and expanding;
• the infrastructure, increasing its coverage and services;
• the whole of the old economy being modernized and rejuvenated; and
• a group of new branches of industry and services that arc supplementary to the others and complete lhe fabric of the economy within-the logic of that paradigm.

136) Thus arrives Maturity, the late phase of the deployment period, with its superficial brilliance and its political turmoil. The workers organize and demand, sometimes very actively, the benefits that had been promised and not delivered. The young. the artists and the discontented also denounce and romantically rebel. Meanwhile, as the period wears on, investment opportunities will dwindle while idle capital grows and grows. Soon, for both production and financial capital, it will be emigration time again often together in search of new outlets abroad, or outside the established paradigm, in unusual


141) Yet, the irruption phase is also a time when the revolution is still only a minor part of the economy, while the bulk of the industries of the old paradigm are mature and offer few good investment opportunities, so idle money piles up and fosters innovations of types D, E and F. So Irruption witnesses the maximum variety and intensity in financial innovation.

142) The most notable shift in innovative behavior in finance occurs after the burst of the bubble, between Frenzy and the ‘golden age’ of early Deployment. In the synergy phase, type A, B and C innovations will tend lo prevail, in the form of adaptive innovations to accompany the full deployment of the paradigm. These innovations support a ‘back to basics’ trend. towards safe price/earnings ratios and towards making money by participating in the real profits made by the productive activities that are being financed.

By Maturity, in contrast, decreasing opportunities are being chased By more and more idle money coming from the ‘cash cows’ of the well-established industries. Thus creativity in finance moves toward type innovations for concentration of ownership and power, as well as toward new foreign investment practices of type B.

143) Many of those manipulative practices will overflow into the irruption phase, after the next big-bang, as parts of the rationalization and the survival tactics of the existing production structure that continues battling for profits and markets behind the astounding economic success of the technological revolution.

144) knowledge. experience and information have become capital goods. This time, It is not the way of purchasing that defines them as such, but the fact that · although intangible they can create new value, which can also be intangible. A growing portion of the economy, in terms of investment and trade, will be related lo intangibles and will require appropriate instruments as well as conceptual creativity. How can knowledge
capital be measured? Can it serve as collateral? What is the value of a product that is infinitely reproducible at almost zero cost?

145) Globalization is not just a much more active international economy; it is a fundamentally different set·up.


155) The Forces Behind the Sequence

The summary above suggests that there are three features in the functioning of the capitalist system driving development by surges and determining the recurrent sequence that characterizes them:

• technical change occurs by clusters of innovations forming successive and distinct technological revolutions that modernize the whole productive structure;

• financial and production capital are interrelated but functionally separate agents, each pursuing profits with different criteria and behaviors: and

• the socio-institutional framework has much greater inertia and resistance to change than the techno-economic sphere, which is spurred by competitive pressures.


159) If one is willing to accept recurrence as a frame of reference and the uniqueness of each period as the object of study, then the power of this sort of interpretation comes forth very strongly.

165) Proposals can only be effective, however, when bearing in mind that institutional change is much slower and culturally more complex than technological or economic change.


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Is a CFA® Charterholder and founder of A site devoted to helping people integrate cryptoassets into their investment portfolios. The CFA designation is globally recognized and attests to a charterholder’s success in a rigorous and comprehensive study program in the field of investment management and research analysis.

Visit the site to subscribe to the newsletter and stay up to date on his latest research into cryptoasset investing.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

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