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Edited by Dimitri B. Papadimitriou and L. Randall Wray
Chapter 9: Hyman Minsky and the Dilemmas of Contemporary Economic Method
9 Hyman Minsky and the dilemmas of contemporary economic method Duncan K. Foley* Introduction Hyman Minsky’s work on financial fragility and the political economy of instability in advanced capitalist economies has had more influence in the policy-making and financial communities than among academic economists. This fate of Minsky’s thought raises some basic questions about contemporary economic methodology, particularly the relations between economic theory, mathematical models, and statistical estimation. Minsky, in pursuing seriously the project of understanding the dynamics of contemporary capitalist society, ran into fundamental limitations of contemporary economic modeling technique. Given Minsky’s strong quantitative training and the nature of his early work in economics, his refusal, often remarked upon, to develop a rigorous mathematical model to express his ideas about financial instability is a sharp reminder of the limits of our current methods. The fertility of Minsky’s insights and the resonance they met in the practical worlds of finance and policymaking suggest that the examination of Minsky’s work offers a valuable critical perspective on modern economic method. Minsky himself was aware of these dilemmas, and refers to them from time to time in explicating his ideas (for example, Minsky 1989), but never, I think, systematically addressed the methodological crisis inherent in his work, nor did he put forward an explicit methodological alternative. Contemporary economics is a distinctive branch of statistical social science. Statistical social science, in turn, is an attempt to adapt the methods of experimental and observational physical sciences to the analysis of data generated in the course...
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