Abstract for: A System Dynamics Examination of the “Spirit of Capitalism”

Starting in the mid 1990s, scholars in finance and economics have created a body of literature in a sub-field called the “Spirit of Capitalism.” Using sophisticated econometric models, authors in this sub-field demonstrated that the search for status seemed to drive stock-market volatility and economic growth and tended to make investors more risk averse. However, much of this work suffers from at least one serious flaw—it lacks operational thinking. The purpose of this paper is to begin an attempt at identifying the operational underpinnings, and the resulting underlying dynamics, of this “spirit of capitalism.” The paper offers two causal loop dynamic hypotheses and the beginnings of a stock-and-flow system dynamics model. It concludes with some thoughts about issues raised by the current paper, and with how the authors will address these issues and develop these ideas in future work.