FERNANDO CARDIM DE CARVALHO, FINANCIAL SYSTEMS, AND THE FINANCING OF CAPITAL ACCUMULATION

ABSTRACT This paper revisits the contributions of Professor Fernando Cardim de Carvalho on the theme of the financing of capital accumulation in monetary economies. It highlights two functions that ideally should be fulfilled by the financial sector to allow market economies to sustain growth and avoid financial instability. The first one relates to ensuring the additional supply of liquidity created by hikes in production and investment (finance motive). The second refers to the provision of mechanisms to fund long-term undertakings, therefore softening the tendency to financial fragility (funding) along the process. The article builds on the foundations put forth by Cardim to suggest that private financial institutions often fail to fulfill these functions due to informational problems and uncertainty, especially in the phase of structural transformation. It concludes by advocating the need for public policies to develop financial markets and instruments that are appropriate to support economic development, which involves transformational investments.