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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.
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Chapter 10: Minsky's analysis, the European single currency and the global financial system

Malcolm Sawyer


10. Minsky’s analysis, the European single currency and the global financial system Malcolm Sawyer INTRODUCTION The purpose of this chapter is to consider the implications of some of the key ideas advanced by Hyman Minsky for the future for the European single currency and for proposals for changes to the global financial system. We begin by giving a brief resumé of those key ideas of Minsky, followed by sections in which we relate to the European Union and to the global level. In his entry in the Biographical Dictionary of Dissenting Economists (Arestis and Sawyer, 1992) Hyman Minsky summarized ‘the doctrines most associated’ with him as: 1. 2. The interpretation of Keynes as an investment theory of the business cycle and a financial theory of investment … The ‘financial instability hypothesis’ which holds that over a period of good times the financial structures of a dynamic capitalist economy endogenously evolve from being robust to being fragile, and that once there is a sufficient mix of financially fragile institutions, the economy becomes susceptible to debt deflations. The significance and necessity of Central Banks to be lenders of last resort in order to help abort and contain debt deflations and therefore the thrust towards deep depressions. The cash-flow analysis of financial relations, which emphasizes the flows of incomes … from the productive part of the economy that can validate financial obligations … The necessity and significance of big government … The significance of financial innovations as reactions to perceived...

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