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What Do Banks Do? What Should Banks Do? A Minskian Perspective

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  • Wray L. Randall

    (University of Missouri at Kansas City, Kansas City, MO, USA)

Abstract

Before we can reform the financial system, we need to understand what banks do; or, better, what banks should do. This article will examine the later work of Hyman Minsky at the Levy Institute, on his project titled “Reconstituting the United States’ Financial Structure.” This led to a number of Levy working papers and also to a draft book manuscript that was left uncompleted at his death in 1996. In this article I focus on Minsky’s papers and manuscripts from 1992 to 1996 and his last major contribution (his Veblen-Commons Award–winning paper). Much of this work was devoted to his thoughts on the role that banks do and should play in the economy. To put it as succinctly as possible, Minsky always insisted that the proper role of the financial system was 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. Central to his argument is the understanding of banking that he developed over his career. Just as the financial system changed (and with it, the capitalist economy), Minsky’s views evolved. I will conclude with general recommendations for reform along Minskian lines.

Suggested Citation

  • Wray L. Randall, 2013. "What Do Banks Do? What Should Banks Do? A Minskian Perspective," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 1-35, April.
    • Handle: RePEc:bpj:aelcon:v:3:y:2013:i:3:p:35:n:6
    DOI: 10.1515/ael-2013-0033
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    References listed on IDEAS

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    1. Hyman P. Minsky, 1996. "Uncertainty and the Institutional Structure of Capitalist Economies," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(2), pages 357-368, June.
    2. Hyman P. Minsky & Dimitri B. Papadimitriou & Ronnie J. Phillips & L. Randall Wray, "undated". "Community Development Banking, A Proposal to Establish a Nationwide System of Community Development Banks," Economics Public Policy Brief Archive 3, Levy Economics Institute.
    3. Martin Mayer, 2010. "The Spectre of Banking," Economics One-Pager Archive op_3, Levy Economics Institute.
    4. L. Randall Wray, 2008. "Financial Markets Meltdown: What Can We Learn from Minsky," Economics Public Policy Brief Archive ppb_94, Levy Economics Institute.
    5. Hyman P. Minsky, 1992. "The Capitalist Development of the Economy and the Structure of Financial Institutions," Economics Working Paper Archive wp_72, Levy Economics Institute.
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    Cited by:

    1. Butzbach Olivier & von Mettenheim Kurt E., 2015. "Alternative Banking and Theory," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 5(2), pages 105-171, July.
    2. Solomon Sorin & Golo Natasa, 2013. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall–Walras Disequilibrium," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 167-260, October.
    3. Fantacci Luca, 2013. "Why Banks Do What They Do. How the Monetary System Affects Banking Activity," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 333-356, November.
    4. Biondi Yuri, 2016. "Empowering Market-Based Finance: A Note on Bank Bailouts in the Aftermath of the North Atlantic Financial Crisis of 2007," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 6(1), pages 79-84, March.
    5. Bavoso Vincenzo, 2017. "“High Quality Securitisation and EU Capital Markets Union – Is it Possible?”," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(3), pages 1-29, December.

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