The Economic Contributions of Hyman Minsky: varieties of capitalism and institutional reform

Abstract

Hyman Minsky's work represents one of the most important links between Post Keynesians and Institutionalists. We begin, in this essay, with a brief summary of some of his earlier work, including his well-known "financial instability hypothesis" and his policy proposals that were designed to reform the financial system, but pay more attention to his writings that explore other analysis and policy proposals that are less well known. These have been for the most part developed in the later years, after the publication of his Stabilizing an Unstable Economy (1986) book, and during his association with the Levy Institute. Minsky always insisted that theory must be institution-specific. Because there are a variety of possible types of economies, and even "fifty seven" varieties of capitalism, theory must be appropriate to the specific economy under analysis. His analysis concerned an evolving, developed, big-government capitalist economy with complex and long-lived financial arrangements. His policy recommendations were designed to promote a successful, democratic form of capitalism given these financial arrangements. These policies would have to "constrain" instability through creation of institutional "ceilings and floors" while at the same time they would have to address the behavioral changes induced by reduction of instability. The policies would also have to promote rising living standards, expansion of democratic principles, and enhancement of security for the average household. Thus, his proposals go far beyond "invisible handwaves" of free market idealogues, but also well beyond macroeconomic tinkering normally associated with "Keynesians" to take into consideration the required institutional change that would promote the sort of society he desired. In this sense, we think it is accurate to claim that Minsky successfully integrated "Post" (or, better, "financial") Keynesian theory with an institutionalist appreciation for the varieties of past, current, and feasible future economic arrangements.

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