Paving the way for reconsidering the working of market economies: the Minsky perspective

This essay develops the financial instability hypothesis of Hyman Minsky through an analysis of the pitfalls of the liberal regulatory framework in order to deal with long-standing and long-lasting financial issues of capitalist economies. It argues that the roots of the 2007/08 crisis are closely related to the regulatory environment in force. Since the 1970s, major capitalist economies evolve towards a new accumulation regime resting on a deep financialisation leading into growing speculative and short-sighted economic activities that generate recurrent crises. This evolution is encouraged and accompanied by market- friendly (de )regulatory mechanisms mainly founded on the belief that liberalised markets are globally self- adjusting. To cope with the pitfalls of such beliefs, the financial instability hypothesis assumes that the functioning of financialised capitalism endogenously generates instabilities and identifies the capital development as the core issue in capitalist evolution. From this perspective, some simple policy principles are suggested to design consistent regulatory mechanisms in order to reduce systemic failures and their consequences in the capitalist economy.