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Financial Crises: Systemic or Idiosyncratic

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  • Hyman P. Minsky

Abstract

The presentations at this conference are by economists from Academies and economists who professionally confront real world problems, either in private finance or in public policy. As economists we accept that the remarks made by Keynes in the closing passage of The General Theory are true: "... the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ....I am sure the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. ... Soon or late it is ideas, not vested interests, which are dangerous for good or evil." We like this assertion not only because it makes us important but also because it makes good sense. The ideas that Keynes refers to are theories. A theory prior for rational action. A of system behavior is a proposed action, whether by individual agents in households or firms, a bank, a government agency or a legislative body is appropriate action only as a theory connects the action to the desired result. Because some institutions, such as deposit insurance, the savings and loan industry, and a number of the great private banks, that served the economy well during the first two generations after the great depression, seem to have broken down, the need to reform and to reconstitute the financial structure is now on the legislative agenda. As we try to fix the financial system three questions should be asked of the pushers of a policy proposal: 1. "What is it that is taken to be broke?", 2. "What theory about proposal?" 3. What are the dire consequences of not fixing that which you assert is broke? In what follows I will take up three points 1. Two views of the results of the economic process 2. Systemic and idiosyncratic sources of financial crises 3. Some ideas about the scope for policy in the present "crisis".

Suggested Citation

  • Hyman P. Minsky, 1991. "Financial Crises: Systemic or Idiosyncratic," Economics Working Paper Archive wp_51, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_51
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    Cited by:

    1. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
    2. Philip Arestis & Malcolm Sawyer, 2003. "The Case for Fiscal Policy," General Economics and Teaching 0306005, EconWPA.
    3. DIAW, Abdou, 2011. "La crise financière mondiale et la finance islamique: une revue de la litérature
      [The global financial crisis and Islamic finance: a review of selected literature]
      ," MPRA Paper 32754, University Library of Munich, Germany.
    4. Leszek Lesniewski, 2015. "Gospodarki Danii, Finlandii i Szwecji a globalny kryzys finansowy / The Global Financial Crisis in Denmark, Finland and Sweden," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 9, pages 5-22, March.
    5. Christine Sinapi, 2011. "Institutional Prerequisites of Financial Fragility within Minsky's Financial Instability Hypothesis: A Proposal in Terms of 'Institutional Fragility'," Economics Working Paper Archive wp_674, Levy Economics Institute.
    6. Elisabetta De Antoni, 2012. "The General Theory after the subprime crisis: a Minskyan perspective," Chapters,in: Keynes’s General Theory for Today, chapter 9, pages 151-166 Edward Elgar Publishing.

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