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Minsky crisis

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  • L. Randall Wray

Abstract

This entry examines the approach of Hyman P. Minsky to financial crisis. Minsky famously developed an ‘investment theory of the cycle and a financial theory of investment'. His thesis was that, over the course of the cycle, behaviour changes in such a way that financial fragility develops. This makes a financial crisis more likely. When the global financial crisis hit in 2008, many commentators returned to the theories of Minsky, calling it a ‘Minsky crisis' or a ‘Minsky moment'. This entry agrees that Minsky deserves credit for identifying the processes that led up to the crisis. However, it is not sufficient to narrowly constrain the analysis to the transition that occurred over the past decade or so. Beginning in the 1980s and through to his death in 1996, Minsky had been arguing that a new form of capitalism had appeared, which he called ‘money manager capitalism'. In important respects it reproduced the conditions that Hilferding had called ‘finance capitalism' in the early 20th century – a form of capitalism that collapsed into the Great Depression. What Minsky was arguing was that an extremely unstable form of capitalism had emerged – one based on what is often called financialisation of the economy. He (rightly) feared that it would ultimately lead to a great crash. The rest of the entry looks at Minsky's proposals for reforms that would help to promote stability. Yet, as Minsky always said, stability is destabilising.

Suggested Citation

  • L. Randall Wray, 2011. "Minsky crisis," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  • Handle: RePEc:pal:dofeco:v:5:year:2011:doi:3852
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    References listed on IDEAS

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    1. Pavlina R. Tcherneva & L. Randall Wray, 2007. "Public Employment and Women: The Impact of Argentina’s Jefes Program on Female Heads of Poor Households," Economics Working Paper Archive wp_519, Levy Economics Institute.
    2. Dimitri Papadimitriou & L. Randall Wray, 1998. "The Economic Contributions of Hyman Minsky: varieties of capitalism and institutional reform," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 199-225.
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    Cited by:

    1. Costa Lima, B. & Grasselli, M.R. & Wang, X.-S. & Wu, J., 2014. "Destabilizing a stable crisis: Employment persistence and government intervention in macroeconomics," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 30-51.
    2. Sergio Cesaratto, 2012. "Neo-Kaleckian and Sraffian controversies on accumulation theory," Department of Economics University of Siena 650, Department of Economics, University of Siena.

    More about this item

    Keywords

    financial instability hypothesis; global financial crisis; Hyman Minsky; money manager capitalism; self-regulating markets; stability is destabilizing;

    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; Stockholm School
    • 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 - - - Historical; Institutional; Evolutionary
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • 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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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