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Financial instability and functional finance : a Lerner-Minsky perspective

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  • Faruk Ülgen

    () (CREG - Centre de recherche en économie de Grenoble - UPMF - Université Pierre Mendès France - Grenoble 2 - UGA - Université Grenoble Alpes)

Abstract

In the wake of the 2007/08 financial crisis, massive public interventions in markets that sought to mitigate the subsequent depression have resulted in huge deficits without being able to calm down the nervousness of markets and the rise of unemployment. A counterproductive dilemma then came into the picture through the opposition between deficit creating reflationary policies and conservative budgetary policies. The “original sin” of such a debate lies in the implicit assumption that active public spending is harmful to economic activity at long run without providing consistent analysis of the malfunctioning of financialized and weakened economies. This paper suggests another alternative by bringing together functional finance of Abba Lerner and financial instability hypothesis of Hyman Minsky in order to state the principles of an alternative macroeconomic stabilization framework able to prevent disequilibria-fuelling speculative finance and to sustain job-creating productive activities.

Suggested Citation

  • Faruk Ülgen, 2014. "Financial instability and functional finance : a Lerner-Minsky perspective," Post-Print halshs-01113534, HAL.
  • Handle: RePEc:hal:journl:halshs-01113534
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01113534
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    References listed on IDEAS

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    1. L. Wray, 2009. "An Alternative View of Finance, Saving, Deficits, and Liquidity," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(4), pages 25-43.
    2. Mathew Forstater, 1999. "Functional Finance and Full Employment: Lessons from Lerner for Today," Economics Working Paper Archive wp_272, Levy Economics Institute.
    3. Peter Hans Matthews & David Colander, 2004. "Integrating Sound Finance with Functional Finance," Middlebury College Working Paper Series 0413, Middlebury College, Department of Economics.
    4. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Mathew Forstater, 1999. "Functional Finance and Full Employment: Lessons from Lerner for Today," Macroeconomics 9908002, EconWPA.
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