Financial Keynesianism and Market Instability

Financial Keynesianism and Market Instability

The Economic Legacy of Hyman Minsky, Volume I

Edited by Riccardo Bellofiore and Piero Ferri

During his lifetime Hyman Minsky made a seminal contribution to the development of financial Keynesianism. In this book, leading academics celebrate his work and explore his economic legacy. Special attention is paid to his work on contemporary economic method, the Great Depression, the European single currency and the global financial system and recent banking and financial crises – in particular the crisis in Asia. An attempt is made to categorise Minsky’s brand of post Keynesianism and to compare his work with the Keynesian and Marxian traditions.

Chapter 1: Economics in the spirit of Minsky

Richard H. Day

Subjects: economics and finance, economic psychology, financial economics and regulation, history of economic thought, post-keynesian economics


Richard H. Day Hyman Minsky took up his graduate study at Harvard just after the Second World War. It was a felicitous time. Schumpeter was to have four more years of life and the macroeconomics of Keynes was being exposed to the postwar generation of Harvard graduate students by Alvin Hansen. It was fertile ground for Minsky’s own ideas to germinate. Schumpeter’s innovating entrepreneurs were the catalysts of capitalist transformation: banks mediated the reallocation of resources to the new profit opportunities by means of credit creation. Keynes’s investors were driven by expectations about rates of return on real capital formation and their relation to money rates of interest. The demand for money to finance capital expansion and consumption competed with the demand for liquidity. For both Schumpeter and Keynes, money had real effects; for both, markets worked out of equilibrium; for both, finance was the very heart of the system. With his dissertation Minsky plunged into the further development of this vision, subsequently shifting from theoretical research in the manner of Samuelson, Goodwin, Modigliani and Tobin to the investigation of financial institutions themselves by means of direct observation. This made his work accessible to members of the financial community. It probably drove a wedge between him and the great body of macroeconomists. Historical, institutionalist methods of research, so important on the Continent in the nineteenth century and passed on to America by Richard T. Ely and John R. Commons, were being abandoned in the postwar era as mathematical and...

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