Can "It" Happen Again?: Essays on Instability and Finance

342 Pages·1984·4.03 MB·English

by  Hyman Minsky

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.
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Hyman
Minsky
Can “It” Happen Again?
Essays on Instability and Finance
With a new foreword by Jan Toporowski
First published in Routledge Classics 2016
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Foreword © 2016 Jan Toporowski All rights reserved. No part of this book may be reprinted or reproduced or
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First published by M.E. Sharpe 1982
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CONTENTS
FOREWORD TO THE ROUTLEDGE CLASSICS EDITION
PREFACE
INTRODUCTION: CAN “IT” HAPPEN AGAIN?: A REPRISE

1 Can “It” Happen Again?
2 Finance and Profits: The Changing Nature of American Business Cycles
3 The Financial Instability Hypothesis: An Interpretation of Keynes and an
Alternative to “Standard” Theory
4 Capitalist Financial Processes and the Instability of Capitalism
5 The Financial Instability Hypothesis: A Restatement
6 Financial Instability Revisited: The Economics of Disaster
7 Central Banking and Money Market Changes
8 The New Uses of Monetary Powers
9 The Federal Reserve: Between a Rock and a Hard Place
10 An Exposition of a Keynesian Theory of Investment
11 Monetary Systems and Accelerator Models
12 The Integration of Simple Growth and Cycle Models
13 Private Sector Assets Management and the Effectiveness of Monetary Policy:
Theory and Practice

INDEX
FOREWORD TO THE ROUTLEDGE CLASSICS
EDITION
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 indicates, 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 financial 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 Chicago. Minsky was
bright and entered Chicago University to study mathematics. There he met the
Polish Marxist Oskar Lange, who encouraged Minsky to study economics. After
military service, at the end of World War II, Minsky spent some months working
for a finance company in New York, before proceeding to Harvard to research for
a PhD under the supervision of Joseph Schumpeter and, after Schumpeter’s death
in 1950, Wassily Leontief. His PhD thesis was a critique of the accelerator
principle that had become a key element of business cycle theory, in the version
put forward by Paul Samuelson. Minsky criticized not only the accelerator
1
principle, but also the absence of financial factors in business cycle theory.