by In his new book — Why Minsky Matters — L. Randall Wray tries to explain in what way Hyman Minsky’s thoughts offer a radical challenge to mainstream economic theory. Although there were a handful of economists who had warned as early as 2000 about the possibility of a crisis, Minsky’s warnings actually began a half century earlier—with publications in 1957 that set out his vision of financial instability. Over the next forty years, he refined and continually updated the theory. It is not simply that he was more prescient than others. His analysis digs much deeper. For that reason, his work can continue to guide us not only through the next crisis, but even those that will follow. Minsky’s view can be captured in his memorable phrase: “Stability is destabilizing.” What appears initially to be contradictory or perhaps ironic is actually tremendously insightful: to the degree that the economy achieves what looks to be robust and stable growth, this is setting up the conditions in which a crash becomes ever more likely. It is the stability that Changes behaviors, policy making, and business opportunities so that the instability results. As a young research stipendiate in the U.S. yours truly had the great pleasure and privelege of having Hyman Minsky as teacher. He was a great inspiration at the time. He still is.
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In his new book — Why Minsky Matters — L. Randall Wray tries to explain in what way Hyman Minsky’s thoughts offer a radical challenge to mainstream economic theory.
Although there were a handful of economists who had warned as early as 2000 about the possibility of a crisis, Minsky’s warnings actually began a half century earlier—with publications in 1957 that set out his vision of financial instability. Over the next forty years, he refined and continually updated the theory. It is not simply that he was more prescient than others. His analysis digs much deeper. For that reason, his work can continue to guide us not only through the next crisis, but even those that will follow.
Minsky’s view can be captured in his memorable phrase: “Stability is destabilizing.” What appears initially to be contradictory or perhaps ironic is actually tremendously insightful: to the degree that the economy achieves what looks to be robust and stable growth, this is setting up the conditions in which a crash becomes ever more likely. It is the stability that Changes behaviors, policy making, and business opportunities so that the instability results.
As a young research stipendiate in the U.S. yours truly had the great pleasure and privelege of having Hyman Minsky as teacher.
He was a great inspiration at the time.
He still is.
The concepts which it is usual to ignore or deemphasize in interpreting Keynes — the cyclical perspective, the relations between investment and finance, and uncertainty, are the keys to an understanding of the full significance of his contribution …
The glib assumption made by Professor Hicks in his exposition of Keynes’s contribution that there is a simple, negatively sloped function, reflecting the productivity of increments to the stock of capital, that relates investment to the interest rate is a caricature of Keynes’s theory of investment … which relates the pace of investment not only to prospective yields but also to ongoing financial behavior …
The conclusion to our argument is that the missing step in the standard Keynesian theory was the explicit consideration of capitalist finance within a cyclical and speculative context. Once captalist finance is introduced and the development of cash flows … during the various states of the economy is explicitly examined, then the full power of the revolutionary insights and the alternative frame of analysis that Keynes developed becomes evident …
The greatness of The General Theory was that Keynes visualized [the imperfections of the monetary-financial system] as systematic rather than accidental or perhaps incidental attributes of capitalism … Only a theory that was explicitly cyclical and overtly financial was capable of being useful …