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Economic Insecurity and the Institutional Prerequisites for Successful Capitalism

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  • Hyman P. Minsky
  • Charles J. Whalen

Abstract

In this paper, which marks the fiftieth anniversary of the Employment Act of 1946, Distinguished Scholar Hyman P. Minsky and Visiting Scholar Charles J. Whalen search for reasons to account for the difference between economic performance in the period from 1946 to 1966 and performance from 1966 to the present. The authors discuss a number of economic problems that arose during the later period, including slower growth, stagnant earnings, rising financial instability, and increasing inequality. Minsky and Whalen acknowledge that factors such as globalization and technological change have undoubtedly played a role in the split performance. However, an often overlooked, but important factor is the evolution of the U.S. financial structure during recent decades. The authors explain that a key component of that evolution has been the rise of "money manager" capitalism. Important features of money manager capitalism are increased financial fragility (lower margins of safety in indebtedness and a greater reliance on debt relative to internal finance) and the introduction into the financial structure of a new layer of intermediation. In particular, managers of pensions, trusts, and mutual funds currently control the largest share of the liabilities of corporations. These managers are judged by only one criterion: how well they maximize the value of funds. As a result, business leaders have become increasingly sensitive to the stock market valuation of their firm. Minsky and Whalen assert that current economic problems require that we reconsider how to measure economic success. In the early postwar period American policymakers could focus on overall economic growth, unemployment, and inflation. These measures, however, are no longer sufficient as indicators of citizen well-being given existing wage stagnation and widespread employment insecurity resulting from longer employment searches, increased dependence on multiple job holdings, and the explosive growth in par

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_165.

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Date of creation: May 1996
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Handle: RePEc:lev:wrkpap:wp_165

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  1. Ellen R. Rissman, 1988. "Why is inflation so low?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Aug.
  2. Hyman P. Minsky & Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, 1992. "Community Development Banks," Economics Working Paper Archive wp_83, Levy Economics Institute.
  3. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
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Cited by:
  1. Charles J. Whalen, 1999. "Hyman Minsky's Theory of Capitalist Development," Economics Working Paper Archive wp_277, Levy Economics Institute.
  2. Lars Osberg & Andrew Sharpe, 2012. "Measuring Economic Insecurity in Rich and Poor Nations," CSLS Research Reports 2012-03, Centre for the Study of Living Standards.
  3. L. Randall Wray, 2011. "Lessons We Should Have Learned from the Global Financial Crisis but Didn't," Economics Working Paper Archive wp_681, Levy Economics Institute.
  4. Malcolm Sawyer, 1999. "Minsky's Analysis, the European Single Currency, and the Global Financial System," Macroeconomics 9904003, EconWPA.
  5. Charles J. Whalen, 2000. "Hyman Minsky's Theory of Capitalist Development," Macroeconomics 0004024, EconWPA.
  6. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
  7. Hyman P. Minsky & L. Randall Wray, 2008. "Securitization," Economics Policy Note Archive 08-2, Levy Economics Institute.
  8. L. Randall Wray, 2010. "What Do Banks Do? What Should Banks Do?," Economics Working Paper Archive wp_612, Levy Economics Institute.
  9. Charles Whalen, 2011. "Minsky Goes to Buffalo—and Takes on the Economics Establishment," Forum for Social Economics, Springer, vol. 40(2), pages 273-280, July.
  10. L. Randall Wray, 2012. "Global Financial Crisis: A Minskyan Interpretation of the Causes, the Fed's Bailout, and the Future," Economics Working Paper Archive wp_711, Levy Economics Institute.
  11. Lino Sau, 2012. "Evolution of China's financial system and its impact on economic development," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 5(1), pages 1-15.
  12. Strachman, Eduardo & Vasconcelos, Marcos Roberto, 2001. "An institutional analysis of some monetary issues in developing economies," MPRA Paper 15128, University Library of Munich, Germany, revised May 2009.
  13. Christine Sinapi, 2011. "Institutional Prerequisites of Financial Fragility within Minsky's Financial Instability Hypothesis: A Proposal in Terms of 'Institutional Fragility'," Economics Working Paper Archive wp_674, Levy Economics Institute.
  14. Hein, Eckhard & Dodig, Nina & Budyldina, Natalia, 2014. "Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared," IPE Working Papers 34/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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