Customer Reviews

Stabilizing an Unstable Economy

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Like fine wine, this 1986 economics book has aged very well and is now ripe for consumption. This is not easy reading - there are a few formulas in the text, though non-economists and mathematicians can skip over these without losing Minsky's arguments - with compelling logic and many, many ponderous assertions. The book is worth every minute of effort, though. A must read for those who want to understand how our modern capitalist economy works, what the flaws in monetarists' views and contemporary Keynesian views are, and why we're inevitably going to have significant periods of financial and economic instability regardless of politicians' and central bankers' efforts.

Minsky is an expert on John Maynard Keynes - his only other major book is a study of him - and he makes it clear throughout this book that the world has hurtled down a path tangential to Keynes' original directions. According to Minsky, 'only those parts of 'The General Theory' that could be readily integrated into the old way of looking at things survive in today's standard theory ... and that the existence of internally disruptive forces was ignored.' According to Minsky, 'The theory of supply under capitalist circumstances ... cannot ignore the way production is financed.' Banking and finance are the major differences between today's capitalist society and the one that Adam Smith wrote about, and for all of the benefits of our modern economy, a major side-effect is an unstable financial system.

Not only have economists misinterpreted Keynes, but Milton Friedman and his fellow monetarists assume away a major theoretical and empirical issue: that the economic system will naturally reach an equilibrium, and that any major economic disruptions are the cause of exogenous forces or human error (raising or lowering interest rates too quickly, for example). Minsky asserts disruptive economic forces are endogenous, part of a modern economy that relies on banking and finance. He notes the presence of significant and growing presence of bubbles since the late 1960s, and worries that their frequency and magnitude will continue to increase, leading to catastrophic plunges and a bailout by the Federal Reserve. Prescient work for 1986, and sadly little read or recognized in its day. According to Minsky, the best that central banks and governments can do is recognize the system is inherently unstable and try to head off signs of trouble. Advice that Alan Greenspan would have been wise to have heeded.

Two decades after it's original publication, two of the author's colleagues (Minsky died in 1996) have written a wonderful and equally dense and thought provoking 25 page introduction (complete with two pages of footnotes!), which in the absence of access to the complete book should be read by all who have an interest in economics. It is one of the best introductions to a work I've read. Take time to read this very important and thought provoking work. It's worth the effort.