Book review of “Technological Revolutions and Financial Capital”


Carlota Perez argues that the economy is a structurally engineered system of collapse and reward. Every half century capitalism produces a chain of events that repeat themselves time and time again. First, an innovative, disruptive technology comes into the world that essentially causes a revolution and upends the current infrastructure/establishment. This rupture enables a financial bubble to build. Once it grows to an unsustainable, overwhelming size, it bursts and the economy collapses. Upon collapse, a fertile ground comes out of the destruction, which leads to a “golden age”. Once the excesses of the “golden age” take root, political unrest arises.


Why is the economy intentionally built as a house of cards? Tech revolutions replace one technology with another, which leads to massive change and a subsequently explosively volatile period in markets (and potentially massive profitability). The new wealth that accumulates at one end is often more than counterbalanced by the poverty that spreads at the other end. With enough discrepancy in wealth, as noted, political unrest boils over. In theory, the practical task of setting up an adequate regulatory system / safeguards would seem essential to minimize suffering and instability. But the safeguards that exist are only present as to the extent that they enable the continuation of the system that they are designed to oversee.


Perez cites Schumpeter’s “Creative Destruction” theory (destroy old to forge new) as pivotal. Tech revolutions lead to paradigm shifts, which result in inclusion-exclusion mechanisms. Then, Perez writes of an “installation period” that is divided into two sections known as “irruption” and “frenzy.” How are these maintained? The first tech revolution enables the subsequent revolutions. Again, a product of design. Most of core assets of tech revolutions already existed. Every revolution combines truly new tech with others that are simply redefined. Big bang events initiating the revolutions are also bringing cost-competitive or cheaper options to the surface, which leads to investment, lending etc.


1st, Industrial rev > led by Britain (1771)

2nd, Age of steam and railways > led by Britain, then USA (1829)

3rd, Age of steel, electricity and heavy engineering > led by USA then Germany (1875)

4th, Age of oil, the car and mass production > USA > (1908)

5th, Age of info and telecommunications > USA > (1971)



She explains the technological revolution requires an entire network of interconnected services and infrastructures in addition to the primary technology that enables the new technology to take hold. An example would be when automobiles were invented, the subsequent services that need to be in place for the proliferation of automobiles would be gas stations and mechanics, but for these secondary services to be profitable, there would first need enough cars on the road. Additionally, people need to be educated with how the technology works, a social assimilation of the technology, transitioning it’s use into second nature. This period is painful for those who are awaiting the profits from the new technologies. The “excitement” at the beginning of a technological revolution “divides society” by “widening the gap between rich and poor” because of the frenzy of investment, and a “rift” occurs between “paper values and real values,”  though mentions nothing about how or why she thinks this happens.

   Characterizing the surge of a technological revolution can be divided into four main phases with a turning point at the center of these phases: Irruption, Frenzy, the turning point, Synergy, and Maturity. Irruption is when the new technology is introduced, the “techno-economic split,” with unemployment and the decline of the old industries. Frenzy is a time where there are “new millionaires at one end and growing exclusion at the other,” and mentions protests as almost a natural feature of this inequality, but that eventually fades. Other features include intense investment in the revolution, and decoupling with the whole system, and this is when the financial bubble happens. The Turning Point is “neither an event nor a phase; it is a process of contextual change,” when regulations balance the excesses and unsustainable features, and where the institutional recomposition and the “mode of growth” is defined. Synergy is known as the Golden Age, with coherent growth with increasing externalities, marked with production. The final phase, Maturity, fades into the Irruption of the next revolution, but is seen as the socio-political split, with market saturation of the last products and industries, and disappointment versus complacency. The first two phases fall within the Installation Period, where the last two are in the Deployment Period.

   Governing these phases of the technological revolution are the those who control Financial Capital, and those who own Production Capital. Financial Capitalists possess wealth in money or other “paper assets”, acting only to increase wealth, and always seeking to make their money grow; making money with money. Production Capitalists seek to create new wealth by borrowing money from Financial Capital to produce goods and services,  and by innovating and expanding, seek to reap as much wealth as possible off of the laborers. The relationship between these two sets of people changes through the phases of the revolution. During Irruption there is a love affair with Financial Capitalists with the revolution. In Frenzy, they decouple from the Production Capitalists, and recouple after the Turning Point in the Synergy phase. And in Maturity, begin to separate again.

The Maturity phase combines the signs of exhaustion of  in many of the original core industries, with very high growth rates in the last few new industries with the same paradigm. Companies begin reaching the limits of their own industries and products and begin to invest in alternatives to carry them through the next phase. The buildup of idle capital of successful companies means more money can be invested in technological advances, mergers and acquisitions, and investments in foreign markets.

The companies begin to operate in a two paradigm mode, earning profits through their core industry while investing capital elsewhere. This development and diffusion of technological revolutions tends to stimulate innovations in finance that benefit from impulse they provide. eg. Suez canal made it possible for entrepreneurs to trade in small quantities of goods creating smaller, shorter-term credit allowing for credit markets that made possible budgets for home purchases of refrigerators, vacuum cleaners and automobiles. The enthusiasm for these new technologies and the success of these new products leads to the end of the Irruption phase and starts the Frenzy.

The realocating of capital in risky investments leads to a destabilization of weaker markets, the redistribution of capital to those with the capital available to make investments. This cycle is usually marked with the overfunding industries that investors are convinced to be the most profitable, often creating a period of ‘ethical softening’ as loopholes are found, and ponzi schemes tend to be enticing in the escalation of investments. This is the boom we’re familiar with, where new companies like Yahoo, who produce virtually nothing, compete with Kodak, and old paradigm technology. This is the period of ‘Irrational exuberance’ and an ‘orgy of unrestrained speculation’ that occurs right before the bubble bursts and the economy is left in a recession, or depression depending on the height of the fall.

In Chapter 12, Perez discusses the passage to maturity through which economies go. A relevant point is her description of what many experience in the Brooklyn gentrification trap. An economy arrives at Maturity, the late phase of the deployment period, that is superficially brilliant but politically tumultuous. Then the workers organize and demand but promises aren’t delivered. The artists and activists and young rebel. As this period continues, the idle capital grows (1%) while investment opportunities dwindle (I’d make the case that this is the lack of available resources for the 99%).

The striking “however” to this economic point that Perez discusses is that “there seems to be an underlying faith in the eventual arrival of a period…without social problems as as a result of the operation of the system” (137). This poignantly describes many peoples’ frustration with the blanket acceptance of capitalism. It does not right itself.

The book ends with Perez asking whether the consequences of the current economic system – with its irruption and frenzy, which end up in a bubble and collapse – can be mitigated.


2 thoughts on “Book review of “Technological Revolutions and Financial Capital””

  1. I like what you added to the end here. And it does create a great beginning for a conversation.

    To start, though, I know she wrote this in 1992 or so. And a lot has happened since then. We were likely in the first or second stage of this cycle at that point. Where do you think we are now? Does her model hold? Is this the maturity/failure phase? Or did social media create a whole new thing?

    Seems to me like social media is just remixing the same parts of the digital revolution in general. So it’s innovation of new combinations of old things. Still, the startup thing feels like a second “frenzy”.

    I guess the shape could be fractal (self-similar) with booms and busts within a larger boom/bust.

    But to start, maybe we should situate ourselves in her sequence.

    Then I want to get to this whole narrative quality – the faith in future. As well as your comparison to gentrified Brooklyn (which I guess came in part from my dissertation intro and Park Slope experience…)

  2. This article makes me think of quite a few things…

    I caught a few episodes on the History Channel a while back about “The Men Who Built America” which speaks extensively about Ford’s difficult entry into manufacturing automobiles and the infrastructure built by J.D. Rockefeller to support them, which I highly recommend seeing.

    It’s interesting that both this book and “Who Owns The Future?” speak of Kodak and draw parallels between its demise and the rise of technology. What a lot of people fail to realize is that Kodak owned many of the patents on the chips inside the digital Nikon and Canon cameras that ultimately undid film. Kodak often was often sitting on forward thinking technology or licensing some of it out, but often didn’t do anything with it because the higher ups didn’t see far enough ahead for their use. I remember visiting the plant and seeing entire wings of amazing technology being worked on and near consumer launch, to literally the next day being axed and never coming to fruition. So I personally disagree about the co-relations drawn between the rise of technology and the demise of Kodak.

    When it comes to the saturation of a market, I cannot help think of Du-pont’s introduction of indestructible women’s nylons in the 1930’s. Within years the market became so saturated that they no longer produced them:

    Lastly, thinking of the continual advances of 3D technology, it’s not so outlandish to think that consumption and saturation of goods would or could be curbed by people being able to download or create schematics of whatever they need or want and make it themselves. This being said with the idea in mind that the recyclability of the printed materials would be able to be put back into these machines and reused many times, the non-harmful use of these substances (ecologically sound printing materials), and ease of interface. Ultimately this would create a network and commodity out of ideas. I’m talking beyond chachkies on thingiverse here, and more like combined with something like this . It would be interruptive for sure, and could lead to a “Golden Age”, but at least it might put some power back in the hands of the people.

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