Financial Fragility and Investment in the Capitalist Economy The Economic Legacy of Hyman Minsky, Volume II
The Economic Legacy of Hyman Minsky, Volume II
Edited by Riccardo Bellofiore and Piero Ferri
Chapter 6: On the foundations of Minsky's business cycle theory: an interpretation*
6. On the foundations of Minsky’s business cycle theory: an interpretation* Richard Arena and Alain Raybaut The contribution of Hyman Minsky to economic knowledge is substantial and complex, covering the various ﬁelds of economic theory, economic policy, history of economic facts, as well as history of economic analysis. An interesting example of this complexity is offered by Minsky’s theory of business cycles. It is clear, indeed, that this theory is incompatible with the view according to which ‘the economy is a mechanism that transforms exogenous shocks, which are either random or unanticipated policy interventions, into business cycles’ (Ferri and Minsky, 1992, p. 81). It is far less clear, however, whether it belongs to ‘the second tradition’ which ‘views business cycles – and economic instability – as the natural and inherent consequence of self interest motivated behaviour in complex economics with sophisticated ﬁnancial institutions’ (ibid.). If this qualiﬁcation is certainly nearer to reality, it would yet be misleading to draw from it the conclusion that Minsky’s contribution to macrodynamics provides a signiﬁcant example of the endogenous business cycle approach. In the last years of his life, Minsky indeed stood aloof from this tradition and tried to point out how his views led to exhibiting a combination of ‘monotonic explosive, explosive amplitude cycles and even chaotic cycles’ (ibid., p. 137). In order to understand these views, it might be useful to come back to their very analytical origins, and to investigate how they generated an original conception of economic instability. In this...
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