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Minsky matters!

from Lars Syll

In his 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.

812NiJyT3MLAlthough 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 …

minskys keynesbokThe 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 usef

  1. March 6, 2017 at 8:10 pm

    I have the tiniest quibble with what you say here: “Randall Wray tries … .”
    I believe he succeeds. I find Wray’s book helpful in navigating Minsky who, in turn, has been essentially helpful for my reading of Keynes.
    I’ve found it well worth my time (ever scarce, as I am 81) reading Minsky now, and still as challenging as ever rereading Keynes.
    I have no regrets about the high-quality training — misguided (in retrospect) though it was — I received in economics, a profession I never practiced. I could have taken a course from Minsky, but our interests were different then.
    The other day I conversed with one of my professors, a 99-year-old economic philosopher who has an incredibly alert brain. I told him that I’d needed to read Minsky to understand Keynes, and sometimes needed Wray to navigate Minsky. He responded, “me too.” He taught Keynes for decades and it was refreshing to hear that I wasn’t alone in my struggle.
    I’m still reading all three together.
    And I immensely enjoy your postings.

  2. Paul Davidson
    March 6, 2017 at 9:39 pm

    perhaps you should have read my book JOHN MAYNARD KEYNES published as one of the series “Great Thinkers In Economics” by Palgrave Macmillan in the year 2007.,

  3. March 7, 2017 at 12:47 am

    only if the fonts are 6 feet high: i can no longer read books in paper

  4. March 8, 2017 at 3:26 am

    In articles from 2013 L Randall Wray;is basically against a Basic income guarantee or UBI; on that issue his arguments seem basically incoherent; Minsky was too for similar reasons. (they are for guaranteed ‘jobs’ though i dought they’d support that if people wanted to be academics or economists as opposed to building bridges). The heterodoxy is just as conflicted as the orthodoxy (especially true when you delve into marxist economics which is a sort of cult of mutually opposed subcults, like many religions and political trends–diversity in/coherence.).

    • March 11, 2017 at 8:08 am

      Under the Job Guarantee, work is designed by non-profit and social venture groups to meet community needs:

      The Social Enterprise Sector Model for a Job Guarantee in the U.S.

      “The non-profit and social enterprise sectors produce original, innovative and sustainable solutions to seemingly intractable socio-economic problems, which the private sector has failed to solve. Their mission and reason for existence is to create social value and address very specific problems like poverty, hunger, homelessness, environmental degradation, community blight, inadequate care and education for all, and other. The work of this sector is perhaps the one bright spot in our economy today. Yet delivering large-scale solutions to these problems remains a challenge for two reasons: 1) its work is always underfunded and 2) it is always understaffed. The Job Guarantee solves both problems—it provides funding and labor.”

    • March 13, 2017 at 5:19 am

      Mart: Wray’s arguments against UBI are quite coherent and logical. Fantastic incoherence and truckloads of magical “thinking” are trademarks of UBI / BIG. UBI is such a loathsome, ludicrously stupid, massively destructive & vicious (towards its purported beneficiaries & any non-billionaire) idea that it is hard to come up with an argument against it that cannot be interpreted (perhaps generously) as decisive. People enamored by these oh-so-pretty proposals should look at real world places with something similar to a UBI. The only examples are not usually thought to be very pretty.

      Unfortunately many intellectuals tend to have far more trouble than ordinary people in thinking carefully and slowly enough to follow the arguments against UBIs & for a Job Guarantee.

  5. March 8, 2017 at 8:39 am

    I’ve found the Wray quote very encouraging. Minsky’s “Stability is destabilising” in a circulating money system is sadly what eventually happened to Keynes and is the problem which comes out in the evolutionary narrative I’m trying to construct. The answer is honest money, i.e. credit card finance in which the debts are our own and we guarantee our own jobs by there always being things needing doing. Mart’s Marxist conflict over resources becomes niche-filling, creating stability by what W Ross Ashby termed “requisite variety”.

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