Keynes’s General Theory for Today

Keynes’s General Theory for Today

Contemporary Perspectives

Edited by Jesper Jespersen and Mogens Ove Madsen

The themes of this important new volume were chosen to mark the 75th anniversary of the publication of The General Theory of Employment, Interest and Money. The distinguished authors concentrate on the relevance of this seminal publication for macroeconomic theory, method and the politics of today. This is particularly pertinent as similarities with the 1930s are striking in terms of unemployment, low growth, financial fragility and the European monetary union resembling the gold standard.

Chapter 9: The General Theory after the subprime crisis: a Minskyan perspective

Elisabetta De Antoni

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

Extract

Opposing the mainstream’s blind faith in the efficiency of the free market, throughout his life H.P. Minsky constantly warned ‘that the capitalist market mechanism is flawed, in the sense that it does not lead to a stable price-full employment equilibrium and that the basis of the flaw resides in the financial system’ (1974: 267). In Minsky’s view, the economy follows a cyclical path that involves recurrent financial crises. Historical evidence in fact testifies that financial crises are systemic and not idiosyncratic (Minsky 1991). Minsky’s central question – the title of Minsky (1963, 1982a) – thus becomes: can ‘It’ happen again?. ‘It’ is the Great Depression and Minsky’s answer is affirmative. If this is true, however, the return to laissez faire actively promoted by the profession in recent decades represents ‘a prescription for economic disaster’ (Minsky and Whalen, 1996–97: 161). That foretold disaster is now before our eyes. The world economy is experiencing one of the most devastating financial crises within human memory.

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