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STABILIZING AN UNSTABLE ECONOMY

STABILIZING AN UNSTABLE ECONOMY

Hyman P. Minsky

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Copyright © 2008 by Hyman Minsky. All rights reserved. Printed in the United States of America. Except as permitted under the UnitedStates Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.
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ISBN 978-0-07-159299-4 MHID 0-07-159299-7 First edition published in 1986 by Yale University Press.

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CONTENTS

Foreword by Henry Kaufman

VB

Preface and Acknowledgments to the First Edition by Hyman P. Minsky ix Minsky'sStabilizing an Unstable Economy: Two Decades Later by Dimitri B. Papadimitriou and L. Randall Wray xi
PART

1: INTRODUCTION

1
3

1.

ECONOMIC PROCESSES, BEHAVIOR, AND POLICY

PART

2:

ECONOMIC EXPERIENCE

13
1975: 1975: 43 15

2.

A DEEP RECESSION BUT NOT A DEPRESSION IN THE IMPACT OF BIG GOVERNMENT

3.
4.

A DEEP RECESSION BUT NOT A DEPRESSION IN

THE IMPACT OFLENDER-OF-LAST-RESORT INTERVENTION THE EMERGENCE OF FINANCIAL INSTABILITY IN THE POSTWAR ERA

77

PART

3:

ECONOMIC THEORY

107
109

5.
6.

PERSPECTIVES ON THEORY

THE CURRENT STANDARD THEORY: THE AFTER-KEYNES SYNTHESIS

129 157

7.

PRICES AND PROFITS IN A CAPITALIST ECONOMY

v

CONTENTS

8. 9.

INVESTMENT AND FINANCE

191 219

FINANCIAL COMMITMENTS ANDINSTABILITY

PART

4:

INSTITUTIONAL DYNAMICS

247 249

10. 11.

BANKING IN A CAPITALIST ECONOMY INFLATION

283 317 319 327 371 381

PART

5:

POLICY

12. 13.

INTRODUCTION TO POLICY AN AGENDA FOR REFORM

APPENDIX

A:

FINANCING STRUCTURES

APPENDIX B: CONSUMER PRICES AND REAL WAGES

Index

385

FOREWORD

When Hyman Minsky's book originally was published more thantwo decades ago, it was ahead of its time. This is often the case with economic thinkers. Joseph Schumpeter enjoys greater influence today than he did in his own time, and'the seminal ideas ofJohn Maynard Keynes gained broad influence well after they were published. So too with the indefatigable Minsky. Although he was a force to be reckoned with during the 1970s and 1980s, his ideas never havebeen more salient than today. If Minsky were alive today, he could justly claim "I told you so" to those who have paid close attention to economics and finance in the last few decades. There is no better moment to reissue this Minsky classic. Like Keynes (about whom Minsky published a biography in 1975) and Schumpeter, Minsky was centrally concerned with business cycles. The Keynesianism that becamedominant following World War II focused chiefly on the politically popular aspects of Keynes' writings. Too few recalled that Keynes recommended monetary action before fiscal activism and budget surpluses during periods of growth. For too many policymakers, Keynesianism meant deficit spending as an all-too-easy and automatic fix. There was a growing sense that Keynesianism had conquered thebusiness cycle, as reflected in terminology like "soft landing" and "mid-course correction." Hyman Minsky forged a different and important connection with Keynes. He emphasized the volatility of investments, pointing out that the underlying uncertainty of the cash flow from investments has powerful repercussions on the balance sheets of business. It was an important insight that deserved much greater...