A Minskyan Road to Financial Reform
AbstractIn the aftermath of the global financial collapse that began in 2007, governments around the world have responded with reform. The outlines of Basel III have been announced, although some have already dismissed its reform agenda as being too little (and too late!). Like the proposed reforms in the United States, it is argued, Basel III would not have prevented the financial crisis even if it had been in place. The problem is that the architects of reform are working around the edges, taking current bank activities as somehow appropriate and trying to eliminate only the worst excesses of the 2000s. Hyman Minsky would not be impressed. Before we can reform the financial system, we need to understand what the financial system does—or, better, what it should do. To put it as simply as possible, Minsky always insisted that the proper role of the financial system is to promote the "capital development" of the economy. By this he did not simply mean that banks should finance investment in physical capital. Rather, he was concerned with creating a financial structure that would be conducive to economic development to improve living standards, broadly defined. In this paper, we first examine Minsky's general proposals for reform of the economy—how to restore stable growth that promotes job creation and rising living standards. We then turn to his proposals for financial reform. We will focus on his writing in the early 1990s, when he was engaged in a project at the Levy Economics Institute on reconstituting the financial system (Minsky 1992a, 1992b, 1993, 1996). As part of that project, he offered his insights on the fundamental functions of a financial system. These thoughts lead quite naturally to a critique of the financial practices that precipitated the global financial crisis, and offer a path toward thorough-going reform.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_655.
Date of creation: Mar 2011
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Web page: http://www.levyinstitute.org
Global Financial Crisis; Hyman Minsky; Financial Reform; Basel III; Capital Development; Banks;
Find related papers by JEL classification:
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian
- B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
- B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Institutional; Evolutionary
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G01 - Financial Economics - - General - - - Financial Crises
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-BAN-2011-03-12 (Banking)
- NEP-HPE-2011-03-12 (History & Philosophy of Economics)
- NEP-PKE-2011-03-12 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephanie Bell & L. Randall Wray, 2004.
"The "War on Poverty" after 40 Years: A Minskyan Assessment,"
Economics Working Paper Archive
wp_404, Levy Economics Institute.
- L. Randall Wray & Stephanie A. Bell, 2004. "The 'War on Poverty' after 40 Years: A Minskyan Assessment," Macroeconomics, EconWPA 0404034, EconWPA.
- Stephanie Bell & L. Randall Wray, . "The War on Poverty After 40 Years: A Minskyan Assessment," Economics Public Policy Brief Archive ppb_78, Levy Economics Institute.
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