www.ebook3000.com Can “It” Happen Again? “Today, his views are reverberating from New York to Hong Kong as economists and traders try to understand what’s happening in the markets Indeed, the Minsky moment has become a fashionable catch phrase on Wall Street.” Wall Street Journal In the winter of 1933, the American financial and economic system collapsed Since then economists, policy makers and financial analysts throughout the world have been haunted by the question of whether “It” can happen again In 2008 “It” very nearly happened again as banks and mortgage lenders in the USA and beyond collapsed The disaster sent economists, bankers and policy makers back to the ideas of Hyman Minsky – whose celebrated “Financial Instability Hypothesis” is widely regarded as predicting the crash of 2008 – and led Wall Street and beyond to dub it as the “Minsky Moment.” In this book Minsky presents some of his most important economic theories He defines “It,” determines whether or not “It” can happen again, and attempts to understand why, at the time of writing in the early 1980s, “It” had not happened again He deals with microeconomic theory, the evolution of monetary institutions, and Federal Reserve policy Minsky argues that any economic theory which separates what economists call the “real” economy from the financial system is bound to fail Whilst the processes that cause financial instability are an inescapable part of the capitalist economy, Minsky also argues that financial instability need not lead to a great depression With a new foreword by Jan Toporowski Hyman P Minsky (1919–1996) was Professor of Economics at Washington University St Louis and a distinguished scholar at the Levy Economics Institute of Bard College, USA His research attempted to provide an understanding and explanation of the characteristics of financial crises, which he attributed to swings in a potentially fragile financial system Minsky taught at Brown University, the University of California, Berkeley and in 1965 he became Professor of Economics of Washington University in St Louis and retired from there in 1990 www.ebook3000.com www.ebook3000.com Hyman Minsky Can “It” Happen Again? Essays on Instability and Finance With a new foreword by Jan Toporowski www.ebook3000.com First published in Routledge Classics 2016 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © Hyman P Minsky 1982, 2016 Foreword © 2016 Jan Toporowski All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe First published by M.E Sharpe 1982 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN: 978-1-138-64195-2 (pbk) ISBN: 978-1-315-62560-7 (ebk) Typeset in Joanna MT by RefineCatch Limited, Bungay, Suffolk www.ebook3000.com To Esther www.ebook3000.com This page intentionally left blank www.ebook3000.com CoNTeNTS KindKind Kind fore­w ord­to­the­rout­l edge­clas­s ics­edition ­ preface ­ intro­d uc­t ion:­can­“it”­happen­again?:­a­reprise ­ 10 11 12 13 Can “It” Happen Again? Finance and Profits: The Changing Nature of American Business Cycles The Financial Instability Hypothesis: An Interpretation of Keynes and an Alternative to “Standard” Theory Capitalist Financial Processes and the Instability of Capitalism The Financial Instability Hypothesis: A Restatement Financial Instability Revisited: The Economics of Disaster Central Banking and Money Market Changes The New Uses of Monetary Powers The Federal Reserve: Between a Rock and a Hard Place An Exposition of a Keynesian Theory of Investment Monetary Systems and Accelerator Models The Integration of Simple Growth and Cycle Models Private Sector Assets Management and the Effectiveness of Monetary Policy: Theory and Practice index ­ ix xv xix 12 59 72 92 120 167 185 198 209 238 266 286 300 www.ebook3000.com This page intentionally left blank www.ebook3000.com Kind edITIoN ForeWord To THe rouTledge ClaSSICS This volume of essays represents the early thinking of Hyman P Minsky, one of the most original economists to have come out of the United States in the twentieth century The essays reveal the themes that emerged from his graduate studies at Harvard University and, as the title of the volume indi­ cates, his abiding preoccupation with the financial crisis that gripped the United States at the start of the 1930s Nearly a century later we commonly think of that crisis as being the 1929 Crash However, as Minsky’s title essay indicates, the crisis that was to haunt him through to his intellectual maturity and beyond was the 1932–3 financial crisis, rather than the crash in the stock market that preceded it by more than three years The difference is important: in 1929, the stock market crashed; in 1932–3, in response to Herbert Hoover’s attempts to balance the United States Federal budget, the stock market and the banking system started to fail, to be rescued only by Franklin Roosevelt’s extended bank holiday, new financial regulations, including the Glass–Steagall Act and the extension of deposit insurance, and the New Deal As these essays make clear, for Minsky avoiding “It” was not just a matter of supporting the stock market and refinancing banks It had to involve fiscal stimulus to prevent a fall in aggregate demand, but also to provide the finan­ cial system with government securities whose value was stable At the time of the crisis Minsky was entering his teenage years He had been born in 1919 to parents who were Menshevik refugees from Russia They engaged with socialist politics and the trade union movement in www.ebook3000.com ... intro­d uc­t ion: can it happen again? :­a­reprise ­ 10 11 12 13 Can It Happen Again? Finance and Profits: The Changing Nature of American Business Cycles The Financial Instability Hypothesis:... the institutional structure and the policy interventions that were largely created by the reforms of the 1930s Can It —a Great Depression happen again? And if It can happen, why didn’t It occur... need to construct a system of institutions and interventions that can contain the thrust to financial collapse and deep depressions without inducing chronic inflation In this book I only offer