Thirteenth Global Studies Conference

Abstract

Prior to the financial crisis of 2008, Hyman Minsky was a largely unknown twentieth century US economist. But, as the crisis reached its depths, he suddenly became required reading on Wall Street. Who was Minsky? What were his most important works? And, why did they attract such a high degree of interest among scholars, policy makers, and Wall Street traders during the crisis? Minsky stressed the importance of finance in market capitalism. He did not assume markets are efficient or that expectations are necessarily rational. Instead, he thought panics, financial fragility, and recurring boom and bust cycles are integral to a capitalist economy and should be made central macroeconomic concepts. Standard macroeconomic theory, on the other hand, neglects the financial aspects of capitalism. Although generating elegant mathematical theorems, it devotes insufficient attention to time, money, uncertainty or the financing and ownership of capital assets and investment. Hence it is of limited utility to policy makers in times of crisis.This paper reviews Minsky’s most important works, particularly his Financial Instability Hypothesis. It discusses the so-called “Minsky Moment” and shows why Minsky’s arguments concerning the inherent instability of capitalist finance are particularly important in times of financial crisis. The paper closes with some helpful hints from Minsky as to how standard macroeconomic theory can be made more relevant to financial crisis situations.