John Maynard Keynes [Paperback]

This is a great book. But it is a book about the views of Minsky, and not really on Keynes. The first chapter examines the way in which Keynes' 1936 book was received and interpreted, and Minsky's explanation is for the most part correct, namely, that Keynes' work represents more a revolution than an extension of "classical" economics. However, as is argued throughout Minsky's book, The General Theory contained only "the seeds for a deep intellectual revolution in economics and in the economists' view of society." According to Minsky, the Keynesian revolution was aborted and the seeds were prevented from reaching their full fruition due to the "bastardization" of Keynes' seminal message. Minsky sets himself the task in this book to bring these ideas back to life.

Chapter two explores the more orthodox (conventional) view of Keynesian economics. Chapter three is very good, as it spells out the concepts that are to be used later in Minsky's analysis of capitalism: the recurrence of the business cycle, uncertainty, and investment and disequilibrium.

Chapters 4 - 7 develop Minsky's theory of capitalism. Minsky argues that booms are inevitably followed by crises and debt deflation not because of certain institutional weaknesses, but because of the fundamental nature of capitalism. In other words, "Keynes visualized [the imperfections of the financial system] as systemic rather than accidental or perhaps incidental attributes of capitalism." Minsky explores the way investments are made, and examines how they are financed. Central to Minsky's analysis is the importance of uncertainty. Financing and liability structures cannot insulate themselves from danger (excessive risk) precisely because the future is uncertain. Another important element in Minsky's book is the importance of money, which he describes as as "insurance policy." This is consistent with Keynes' definition of liquidity. In the event that sales proceeds cannot meet existing liabilities, the possession of money becomes essential due to the frequent revaluations of capital assets making their quick sale at certain prices nearly impossible.

I really enjoy Minsky's work, but this book gives me the impression that Minsky was more concerned with fitting Keynes in his (minsky's) own analysis than in explicating very clearly and honestly Keynes' own economic views. This can best be seen in the last two chapters on social policy. Nevertheless, Minsky is the most important expositor of the "Financial Instability Hypothesis" and this book is a great place to begin.

This excellent book examines John Maynard Keynes' key work, The General Theory of Employment, Interest, and Money, published in 1936, seven years into the Great Depression, when one in seven US workers was still out of work.

Keynes' thinking largely broke free of the conventional wisdom, that wrecking the trade unions would make the market work again. But he didn't leave behind all conventional free trade thinking.

Minsky writes, "the missing step in the standard Keynesian theory was the explicit consideration of capitalist finance within a cyclical and speculative context." Minsky shows that private investment is the constant source of speculation, instability, slumps and mass unemployment.

Minsky shows the conflict at the centre of capitalism: "the boom is critical; it builds an ever-more-demanding liability structure on the base of a cash-flow foundation consisting of the prospective yields of capital assets, which are, because of technology and the limited ability to squeeze workers' real wages, at best constrained ultimately to grow at a steady rate in real terms. The debt base, which grows at an accelerating rate during a boom, is not so constrained. Thus, debts require increased servicing as they grow and as financing charges increase."

He observes, "In Keynes' own view his theory implied that the existing order should be replaced by a much more egalitarian economy, based upon a dominance of social control over investment. As the private, profit-motivated decisions to invest cannot guarantee a reasonable approximation to full employment, `a somewhat comprehensive socialization of investment' (GT, p. 378) will prove necessary." But Keynes breezed over the politics needed to do this. How could we socialise investment without taking power from the capitalist class?

Minsky notes, "Keynes also believed that `if nations can learn to provide themselves with full employment by their domestic policy ... there need be no important economic forces calculated to set the interest of one country against that of its neighbours.'" But if capitalism could do this, it wouldn't be capitalism. Capitalist economies are basically flawed - unstable and unequal, unworkable and unjust.

The author makes a statement that conventional intepretation of Keynes's ideas loses the true meaning and spirit of the real theory of JMK. He offers an alternative interpretation, that connect the debt financing in economy that is always speculative in nature (for the author's opinion) and cyclical behavior of the capitalism. During booms debt financing increases that leads to instability and crises (to make it very simple). Author is very persuasive both in explanation why his interpretation is much closer to real Keynes's views and in explanation of the real cyclical path of capitalism. I recommend this book to all who are interested in macroeconomics, business cycles, financial crises.