- Elgar original reference
Edited by Dimitri B. Papadimitriou and L. Randall Wray
14 The generalized ‘Minsky Moment’ James K. Galbraith and Daniel Munevar Sastre The concept of systemic instability is the cornerstone of Hyman Minsky’s work. Minsky argued that system dynamics inherent to capitalism foster fragility, as stability spurs risky behavior, and risky behavior leads to crisis. As he put it, most succinctly: ‘stability is destabilizing’ (Minsky 1985). This key notion is based on a clear and detailed analysis of modern financial capitalism, but it is also rooted in human psychology and behavior. There is nothing that restricts the application of Minsky’s insight to the pecuniary realm. It is therefore astonishing how little has been done to extend the basic conceptual framework to other areas of social science. This chapter is a first effort: we attempt here to take Minsky’s theory of financial fragility into the realm of international relations. Our modest objective is to sketch an analytical framework that may help describe the economic, political and military interactions of nation states, in the light of Minsky’s famous analytical distinction between hedge, speculative and Ponzi finance. The chapter is presented in two sections. The first section outlines the theory. The second section presents a brief overview of modern history, using the terminology developed in the first section. The section also shows the connection between cycles of international relations and the evolution of the international monetary system. Thus it will develop that in this sphere, deterioration of the risk environment in politico-military terms usually has a counterpart in pecuniary relations after all. A...
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