Financial Fragility and Investment in the Capitalist Economy

Financial Fragility and Investment in the Capitalist Economy

The Economic Legacy of Hyman Minsky, Volume II

Edited by Riccardo Bellofiore and Piero Ferri

Hyman Minsky is renowned for his theoretical and empirical investigation of the capitalist economy. In this book, a distinguished group of contributors provides an authoritative account of his contribution to the analysis of capitalism and, more particularly, to the fields of monetary and post Keynesian economics.

Chapter 2: Ceilings and floors, growth and the NAIRU

Piero Ferri

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

Extract

2. Ceilings and floors, growth and the NAIRU Piero Ferri* 1 INTRODUCTION: MINSKY’S CONTRIBUTION Although it is widely agreed that Hyman Minsky’s main contributions lie in the field of financial instability, this is only the tip of the iceberg, as Ferri (1992) tried to show some time ago. His analysis derives from a broader ‘vision’, to use the language of one of his mentors, Schumpeter, that implies both the existence of endogenous forces leading to economic instability and the presence of institutional thwarting mechanisms that try to prevent them (Ferri and Minsky, 1992). It is the interplay between these two forces that characterizes the dynamics of economic systems, in which the evolution of the institutional aspects play a fundamental part. This vision is the leitmotiv that lies behind most of Minsky’s contributions and has been incorporated in different analytical expressions, starting from one of his initial contributions: the ceiling and floor model of growth (Minsky, 1959). The importance of this article can be detected at three levels (see Ferri, 1997). First of all, it belongs to the history of endogenous cycles and growth. In the second place, it opens up the way to the introduction of non-linearities in economics. Finally, it exemplifies the interplay between market forces and institutions, with the working of the economy characterized by an unconstrained behaviour in a corridor and by a constrained dynamics when certain barriers are reached. The purpose of this chapter is to further develop this strategy of research. In particular, I...

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