Economics

Hyman Minsky’s Enduring Relevance to Economic Theory and Policy

September 2, 2022

Written by Charles J. Whalen, Research Fellow, Baldy Center for Law and Social Policy, University at Buffalo, USA

On October 19, 1987, the US stock market lost nearly 25 percent of its value—the largest single-day drop in history. As market distress reverberated worldwide, values on global stock exchanges plummeted, resulting in “Black Monday”—the first contemporary global financial crisis. In the aftermath of that crash, American economists held their annual meeting in Chicago, and Hyman Minsky was the speaker it seemed everyone wanted to hear.

Minsky, then a professor on the verge of retirement at Washington University in St. Louis, was thrust into the limelight by the 1987 crash. That’s because many regarded him as the most prominent opponent of the economics profession’s insistence that financial crises and business cycles no longer represented important real-world problems. While other economists were either ignoring crises and cycles or dismissing them with general-equilibrium analyses, Minsky was developing a “financial instability hypothesis”—that explained booms and crashes as an inherent part of a modern economy—and patiently applying his theory to analyze a series of such episodes that occurred in the decades before and after World War II.

Minsky understood that achieving serious public-policy reform—aimed at reaching and sustaining full employment and better addressing financial instability and other real-world problems—requires also reconstructing economics. In fact, that was the explicit aim of a workshop he convened in 1991, when he served as a senior scholar at the Levy Economics Institute of Bard College. Minsky stressed a reconstruction grounded in an appreciation of the following: constant economic change, the need for economic decision-making in the face of uncertainty, and the role of socioeconomic institutions and public policy as key determinants of economic processes and outcomes. He was an eclectic economist, who learned from a diverse group of professors at the University of Chicago and Harvard University (including Henry Simons, Oscar Lange, and Joseph Schumpeter), but in the last few decades of his life he was most at home among economists calling themselves post-Keynesians and institutionalists.

When the severe global financial crisis of 2007–2009 blindsided economists and policymakers alike, Minsky and his ideas were back in the headlines. For example, he was featured in a front-page story in The Wall Street Journal, and The Nation published an essay with the title “We’re all Minksyites Now.” However, by then Minsky had been dead for a decade, so the task of applying his insight to that crisis fell upon his intrepid followers, many of whom who have come to embrace the term “post-Keynesian institutionalism” to describe their approach to economic theory and policy.

Two new books by Edward Elgar Publishing look at the global financial crisis and several new and continuing economic challenges by drawing heavily on Minsky’s insight and analyses. The books also seek to trace the development and contours of post-Keynesian institutionalism, and to advance that approach by taking the ideas of Minsky and other pioneering contributors—including John R. Commons, Joan Robinson, and John Kenneth Galbraith—in new directions.

In Reforming Capitalism for the Common Good: Essays in Institutional and Post-Keynesian Economics, 25 essays (written over three decades) build on the work of Minsky and institutionalist John R. Commons to address the causes and consequences of US macroeconomic instability, job offshoring, community economic dislocation, financialization, income inequality, and rising worker insecurity. The result is a compelling case for reforming capitalism by addressing workers’ interests as an integral part of the common good, and for reconstructing economics in the direction of post-Keynesian institutionalism. Scholars and students of economics and labor studies will appreciate the incisive analyses and real-world focus, while policy analysts and concerned citizens will welcome the book’s optimistic vision for our economic future.

In A Modern Guide to Post-Keynesian Institutional Economics, an international team of more than a dozen scholars breaks new ground by extending recent analyses of today’s investor-driven (“money manager”) capitalism, with special attention to financialization and economic insecurity. It also sharpens concepts and methods (such as social capital and stock-flow consistent modeling, respectively), sketches new theories on labor and financial markets, and infuses post-Keynesian institutionalism with insight from other research traditions including feminist and environmental economics. The book serves as both a valuable reference volume and a source of material suitable for course adoption at either the undergraduate or graduate levels.

Both books make it clear that post-Keynesian institutionalism does not rest upon Minsky alone. But they underscore the continuing importance of Minsky’s contributions for those interested in a historically and institutionally grounded reconstruction of economics. They also highlight the enduring relevance of his focus on ongoing economic evolution, support for the goal of full employment, and commitment to a democratic and humane economy.

Minsky pointed us in the right direction. Earlier this year, a team of foundations announced a commitment to allocate more than $40 million to economic and policy research focused on alternatives, with special attention to inequality and the economic challenges faced by workers. Inspired by Minsky, post-Keynesian institutionalists have been studying these problems for decades. Minsky may be gone, but we can still stand on his shoulders to better understand the real world and craft a more constructive body of economic theory and policy.