The Economic Legacy of Hyman Minsky, Volume I
Edited by Riccardo Bellofiore and Piero Ferri
Chapter 9: Recent banking and the financial crises: Minsky versus the financial liberalizationists
9. Recent banking and ﬁnancial crises: Minsky versus the ﬁnancial liberalizationists Philip Arestis* INTRODUCTION The purpose of this chapter is to revisit the debate on the relationship between ﬁnancial-sector developments and economic growth, in an attempt to throw some light and explanation on the origins of the recent banking and ﬁnancial crises. I do so by concentrating on Minsky’s contributions to the debate and that of the ﬁnancial liberalization proponents. I examine the experience of a number of countries which liberalized their ﬁnancial systems only to ﬁnd that banking and ﬁnancial crises ensued. I begin with the theoretical positions of the two theses, followed by a short excursion into the recent banking and ﬁnancial crises. I discuss brieﬂy the experience of countries which experimented with ﬁnancial liberalization policies and comment on their performance and implications. This leads me to suggest that Minsky’s contributions on banking and ﬁnancial crises offer a better understanding of the workings of ﬁnancial markets and their performance than those of the ﬁnancial liberalizationists. Then I extend Minsky’s model to account for the external sector, which is a particularly important aspect of the recent ﬁnancial and banking crises. THE THEORETICAL POSITIONS The Financial Liberalization Thesis The ﬁnancial liberalization position is that ﬁnancial markets left to their own devices are inherently stable and robust. They possess endogenous forces * The author is grateful to Murray Glickman, Malcolm Sawyer, Gary Dymski and to the participants of the conference for helpful comments. The usual disclaimer applies. 159 160 Money and...
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