Recently, the Levy Institute, the think-tank centre for post-Keynesian economics (and in particular the theories of Hyman Minsky, the radical Keynesian economist of the 1980s), published a short video that that shows Minsky explaining his theory of crises under capitalism in his own words at an event in Columbia University, November 1987. It is a very clear account of his theory of crises based on ‘financial fragility’’.
When the Great Recession hit the world capitalist economy, many radical and Marxist economists, and even some mainstream economists, called the GR a ‘Minsky moment’. In other words, the cause of the Great Recession was a financial crash resulting from excessive debt that eventually could not be serviced. Minsky’s key contention, that financial instability is endogenously generated, implies that not only financial but also ‘real’ crises arise as a result of the inner workings of the financial system: ‘History shows that every deep and long depression in the United States has been associated with a financial crisis, although, especially in recent history, we have had financial crises that have not led to a deep and long depression’ (Minsky*).
In my view, this is an accurate statement. A financial crash occurs in every capitalist slump, but financial crashes can occur without a slump. But this suggests that what is going on in the ‘real economy’ is what decides a financial crash, not vice versa. Indeed, as G Carchedi has shown (see graph below), when both financial profits and profits in the productive sector start to fall, an economic slump ensues. That’s the evidence from the post-war slumps in the US. But a financial crisis on its own (as measured by falling financial profits) does not lead to a slump if productive sector profits are still rising.
Indeed, if you listen closely to Minsky’s account (above) of his crisis theory, he recognises that excessive debt in the form of Ponzi finance only leads to a crash when the profits engendered in business and in banking are no longer sufficient to sustain debt expansion. As Minsky puts it, “borrowers are myopic to the past and blind to the future.’’
At the recent ASSA 2020 conference, the annual meeting of mainstream economists organised by the American Economic Association, there were also sessions by the more radical wings of economics: post-Keynesians and Marxists. Riccardo Bellofiore, the erudite scholar of Marxist, Sraffian and Keynesian economic theory, presented two papers that offered interesting insights on Minsky’s theories. In his first paper, Bellofiore argues that “the current crisis is the outcome of money manager capitalism stage of capitalism – the real subsumption of labour to finance, in Marxian terms. The most promising starting points are the structural dimensions of Minsky’s analysis and the monetary circuit approach.” Minsky’sSocializationOfInvestment__preview (6)
In his second paper, he argues that “Minsky’s contributions are major necessary ingredients to a rethinking of Marxian theory of capitalist dynamics and crises.”
MarxBetweenSchumpeterAndKeynes_Augu_preview (2)
I beg to differ. I do not think that Minsky’s theories dovetail with Marx’s theory of crises or that they provide a better explanation of booms and slumps than that of Marx. Marx not Minsky As Maria Ivanova from Goldsmiths University, London has argued effectively (in a paper of a few years ago comparing Minsky and Marx’s theories of crises), Marx was firmly opposed to blaming crises on financial speculation, or on the recklessness of single individuals (Marx and Engels, Collected Works, 1975, p. 401). “Speculation and panic may trigger crises, but to trigger something does not mean to cause it. For Marx, the ultimate origins of all crises lie in the ‘real’ economy of production and exchange.” (Ivanova conf_2011_maria_ivanova-on-marx-minsky-and-the-gr)
Ivanova argues that Marx’s concept of money could not be more different from Minsky’s. Marx saw money as the social expression of value – the amount of socially necessary labour time embodied in a commodity. Money thus expresses the deepest contradiction of the capitalist production relations in ‘a palpable form’. The Minskyan perspective prides itself on its Keynesian origins. “In contradistinction to Marx, Keynes accorded primary importance to interest-bearing capital where capital appears as property and not as function. And since capital in that form does not function (i.e. does not engage in immediate production), it does not directly exploit labour; class conflict appears obliterated since the rate of profit now forms an antithesis not with wage labor but with the rate of interest” .
Ivanova reckons that implicit in the Keynesian-Minskyan perspective is the insight that finance can repress production, overpower it, and ‘decouple’ from it (at least temporarily) to the detriment of the wider economy – this is what Bellofiore argues is its major insight. But it follows from this that Minsky reckons that if finance were controlled, regulated, restrained, some of the worst ills of capitalism could be kept at bay. This view is in sharp contrast to Marx, who reckoned that the inherent contradictions of capitalism were beyond human control.
Minsky believed, in line with the Keynesian tradition, that the crises arising from the permanent disequilibrium of the capitalist system could be contained by the concerted effort of ‘Big Government and Big Finance (‘monetary authorities). As Ivanova puts it: “the popular tale of the purely financial origins of the recent crisis dovetails nicely with the belief that financial instability and crises, albeit tragically unavoidable and potentially devastating, can be managed by means of money artistry” No wonder many mainstream economists in the depths of the global financial crash, like Paul Krugman, reckoned that ‘’we are all Minskyans now”.
But the belief that social problems have monetary/financial origins and could be resolved by tinkering with money and financial institutions, is fundamentally flawed. “For the very recurrence of crises attests to the limits of fiscal and monetary policies as means to ensure ‘balanced’ accumulation.”” (Ivanova). Minsky** considered the dependence of non-financial businesses on ‘external funds to finance the long-term capital development of the economy’ a key source of instability. This provided an important rationale for government intervention. In his famous book, Minsky, Stabilizing an Unstable Economy (1986), he wrote ‘Once Big Government stabilizes aggregate profits, the banker’s reason for market power loses its force’.
So the job of the radical economist was to restore the profitability of capital by the intervention of the monetary and fiscal authorities, according to Minsky. This was more important that shifting the burden of any financial crisis off the backs of the many. As Minsky said in the 1980s: “It may also be maintained that capitalist societies are inequitable and inefficient. But the flaws of poverty, corruption, uneven distribution of amenities and private power, and monopoly-induced inefficiency (which can be summarized in the assertion that capitalism is unfair) are not inconsistent with the survival of a capitalist economic system. Distasteful as inequality and inefficiency may be, there is no scientific law or historical evidence that says that, to survive, an economic order must meet some standard of efficiency and equity (fairness) .”
Riccardo Bellofiore in his ASSA paper is keen to tell us that, in his book on Keynes (1975), Minsky adopted a more radical position than Keynes on the need for the “socialization of investment’’ as the solution to crises. Riccardo reckons that “Minsky’s socialization of investment, thanks to his reference to the New Deal, is not far from a socialization in the use of productive capacity: it is a “command” over the utilization of resources; its output very much looks like Marx’s “immediately social” use values. It is complementary to a socialization of banking and finance, and to a socialization of employment. Minsky goes further that a “Keynesian” welfare state and argues for a full employment policy led by the government as direct employer, through extra-market, extra-private enterprise and employment schemes.”
But this was in 1975. Mike Beggs, a lecturer in political economy at the University of Sydney in a recent article, shows that, while that Minsky started off as a socialist, at least in following the ideas of ‘market socialism’ by Oscar Lange, he eventually retreated from seeing the need to replace capitalism with a new social organisation (or ‘socialised investment’), to trying to resolve the contradictions of finance capital within capitalism, as his eventual financial fragility theory of crises shows.
As Bellofiore says, in the 1970s, Minsky contrasted his position from Keynes. Keynes had called for the “somewhat comprehensive socialization of investment” but went onto to modify that with the statement that “it is not the ownership of the instruments of production which it is important for the State to assume” — it was enough to “determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them.” But Minsky went further and called for the taking over of the “towering heights” of industry and, in this way, Keynesianism could be integrated with the ‘market socialism’ of Lange and Abba Lerner.
But by the 1980s, Minsky’s aim was not to expose the failings of capitalism, but to explain how an unstable capitalism could be ‘stabilised’. Biggs: “His proposals are aimed, then, at the stability problem. ….The expansion of collective consumption is dropped entirely. Minsky supports what he calls “Big Government” mainly as a stabilizing macroeconomic force. The federal budget should be at least of the same order of magnitude as private investment, so that it can pick up the slack when the latter recedes — but it need be no bigger.”
Indeed, Minsky’s policy approach is not dissimilar from that of today’s Modern Monetary Theory supporters. Minsky even proposed a sort of MMT job guarantee policy. The government would maintain an employment safety net, promising jobs to anyone who would otherwise be unemployed. But these must be sufficiently low-paid to restrain market wages at the bottom end. The low pay is regrettably necessary, said Minsky, because “constraints upon money wages and labor costs are corollaries of the commitment to maintain full employment.” The discipline of the labour market must remain: working people may not fear unemployment, but would surely still fear a reduction to the minimum wage (Beggs). Thus, by the 1980s, Minsky saw government policy as aiming to establish financial stability, in order to support profitability and sustain private expenditure. “Once we achieve an institutional structure in which upward explosions from full employment are constrained even as profits are stabilised, then the details of the economy can be left to market processes.” (Minsky).
Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny/ignore that profit comes from surplus value extracted by exploitation in the capitalist production process and it is this that is the driving force for investment and employment. They ignore the origin and role of profit, except as a residual of investment and consumer spending. Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money (finance) as both causing crises and, also as solving them by creating value!
In my view, far from Minsky providing the “necessary ingredients to a to a rethinking of Marxian theory of capitalist dynamics and crises”, as Bellofiore argues, Minsky’s theory of crises, like all those emanating from the post-Keynesian think tank of the Levy Institute, falls well short of delivering a comprehensive causal explanation of regular and recurring booms and slumps in capitalist production. By limiting the searchlight of analysis to money, finance and debt, Minsky and the P-Ks ignore the exploitation of labour by capital (terms not even used). They fail to recognise that financial fragility and collapse are triggered by the recurring insufficiency of value creation in capitalist accumulation and production.
Moreover, by claiming that capitalism’s problem lies in the finance sector, the policy solutions offered are the regulation and control of that sector, rather than the replacement of the capitalist mode of production. Indeed, that is the very path that Minsky took: from his socialism and ‘’socialisation of investment’’ in the 1970s to ‘stabilising finance’ in the 1990s.
* Minsky, H. P. (1992a) Reconstituting the United States financial structure: some fundamental issues, Working Paper No. 69, Levy Economics Institute of Bard College.
** Minsky, H. P. (1996) Uncertainty and the institutional structure of capitalist economies: remarks upon receiving the Veblen-Commons award, Journal of Economic Issues, 30, pp. 357-368.
Michael Roberts Blog 
Good article. You gave me a MInsky moment when I read it. I thought it was only politicians that moved from the right to the left. I am preparing an interesting post which will be posted on my website, theplanningmotive.com this week. It investigates the interaction of turnover, the rate of profit, circulating (working) capital and specifically, the ratio of funding this working capital from internal funds (profits) and external funds (bank credits). I have completed the series of graphs to be included and what is already evident is that as the rate of profit has collapsed since 2014, the financing of working capital and thus the continuation of the expansion is increasingly dependent on bank credit. Moreover, not only is the share of external funds at its highest since WW2, but more interestingly, this has endured for four years. Normally the credit share peaks and then plummets within the space of a year as the industrial cycle concludes.
My article will address the heart of the problem of financialization, proving it cannot be addressed outside the context of the rate of profit.
“It may also be maintained that capitalist societies are inequitable and inefficient. But the flaws of poverty, corruption, uneven distribution of amenities and private power, and monopoly-induced inefficiency (which can be summarized in the assertion that capitalism is unfair) are not inconsistent with the survival of a capitalist economic system. Distasteful as inequality and inefficiency may be, there is no scientific law or historical evidence that says that, to survive, an economic order must meet some standard of efficiency and equity (fairness) .”
Then why bother trying creating a brand new theory of stabilization?
Oh, yeah, sure: must keep that money from a CIA-funneled “scholarship” going to your pockets.
Michael,
re Bill Mitchell’s explanation of the MMT JG wage (quoted in an earlier article by you, examining MMT), namely:
““To avoid disturbing the private sector wage structure and to ensure the JG is consistent with stable inflation, the JG wage rate is best set at the minimum wage level”.
…you make much of the word ‘minimum’, whereas as Mitchel insists that it be above poverty level. Further Mitchell insists that if the lowest paid private sector jobs cannot match this community wide standard of ‘above poverty level’ , then private employers should be either left to go broke, or if they can survive, accept lower profits.
Therefore I see no problem with Mitchell’s analysis, in regard to the employer of last resort (ELR) setting the *above poverty* minimum JG wage in the economy, a minimum which all private employers must either exceed (courtesy of the ‘efficiency’ and ‘creativity’ of the private sector), or go out of business.
Which is surely in accordance with Marx’s theory of the ‘social value’ of money as I understand it, stated in your article above, namely:
“Marx saw money as the social expression of value – the amount of socially necessary labour time embodied in a commodity”.
Money as capital is the expression of human labor as “labor power” or exchange value–alienated human labor.
The heart of Marx’s labor theory of value is his theory of alienation, upon which his critique of political economy and his labor theory of value are based. Surplus value extraction is the product of the historically evolved (and now global) process in which the majority of human beings are forcibly/juridically alienated from the means of production and distribution.
Even a guaranteed global minimum wage (i.e. end of imperialism) under the capitalist mode of production would not solve this inherently unequal, antagonistic “social relation,” that drives the capitalist mode of production from crisis to crisis, war to war, and the alienation of human beings from each other and from the earth itself.
Thatcher personified capitalism as such when she said “there is no such thing as society”. There’s no profit in it.
I should make the point I tried to make briefly in the first sentence more clear. It should be replaced with:
“Money can be a social expression of “value” in any social formation, even in one not producing commodities. Within the capitalist mode of production money is not the expression of value in general, but of the exchange value of alienated labor which sells its ability to work because it must in order to live. The prominence of money is a symptom of this problem, not its solution.
Imagine an island with two classes. One class controls its own labour power (no slavery), all natural resources (land) and the printing press (the means of exchange, money capital), the other class is made up of old people (too old to work) who own man-made machines (real capital). Which group is more powerful? Old people with real capital or workers with money and land?
It’s true that real capital owners can make an income by renting their machines, but they can’t make more than the social necessary labour time incarnated in their machines. (No exploitation) The more productive the economy gets the less labour value is incarnated in the machines, so their income will fall (falling rate of profit). But this won’t translate into a crisis, there will be no unemployment, since a falling rate of profit won’t stop the workers (having control of the printing press and owning all the land) to produce everything they need. Since the workers can make all the machines themselves, owners of real capital won’t get more than the social necessary labour time incarnated in their machines. If this income turns zero of negative, so be it.
This proofs that ownership of real capital won’t enable exploitation. Exploitation is based on the ownership of land and money capital. Land and money capital have both in common that they can’t be produced by workers. Both land and money are kept scarce artificially. Without borders, land would be practically infinite, without austerity, enough money could be printed to secure full employment.
Look what happens in a crisis! Do rich people try to safe their wealth by going into machines? No. It’s always money or money substitutes (like treasuries) which they try to buy. If the central bank tries to take that possibility away (by buying up treasuries and inflating the currency), they go into land or land-like assets (stocks by firms with lots of market power, market power is always based on natural resources, network effects and intellectual property which are all forms of land).
Marxists have it right when they say that Keynesians or MMTer can’t restore the profit rate. (Keynesians or MMTers can only produce mountains of either private or public debt, which are forms of fictitious capital.)
But they are dead wrong if they think ownership of some old machines or some old buildings is a source of power. It’s all about money and land.
Except machines aren’t “real capital,” they’re machines until a certain specific social relation is established– a working class that has no use for its own labor, and capacity to labor, other than as a means of exchange to meet the needs of their own reproduction. In that relationship is the basis for the conversion of surplus labor to surplus labor time, and surplus labor time to surplus value.
All Alex’s Robinson Crusoe-ism says, in his iteration, is that the renter of the machines can never get more for the machines in such a society than the value embedded in them– which is like telling us that bankers can never make more profit than the amount of profit generated in the whole of society. How profound.
Guess what? Landlords can’t make a greater profit than that which is generated in society as a whole either. How about that? So the issue is how is the surplus labor time extracted? How is it made to manifest itself as surplus value? And…..how is that surplus value reintegrated into, and as, the accumulation of capital?
Keynes has no answer for that. MMT has no answer for that. And rounding out our troika, Alex has no answer for that.
“Except machines aren’t “real capital,” they’re machines until a certain specific social relation is established..”
That’s the whole point of my island fantasy. Ownership of real capital won’t establish the social relations necessary for capitalism.
“that the renter of the machines can never get more for the machines in such a society than the value embedded in them…”
Yes, but this implies that they won’t see any new profits. They only get their constant capital, which they can reinvest, hiring labour to keep their machines up to date. But since a competitive economy will get more productive, less labour will be needed to produce new machines. The value embedded in constant capital will fall. The owners of real capital will get poorer and poorer. But nevertheless, no crisis and no unemployment, because in my island fantasy owner of real capital are not the owners of money capital. The owners of money capital are the workers, who will not stop investing since they have a vital interest in full employment.
“…how is that surplus value reintegrated into, and as, the accumulation of capital?Keynes has no answer for that. MMT has no answer for that. And rounding out our troika, Alex has no answer for that.”
I agree with the answer given by Marx, but the correct interpretation is not: exploitation through ownership of real capital, but through ownership of money capital. Marx’ capitalism is right from the start financial capitalism, no matter if money capital is self invested or lend out. It is always M-C-M’. It starts always with money capital (gold in Marx’ times), which is hoarded labour value created through primitive accumulation. Then this monopoly of money capital is used to exploit labour. A worker without money can’t create any demand for his labour. Demand is created through investment decision by money capitalists. The moment profit rates go to zero, they stop investing. This creates a crisis, unemployment and the destruction of capital values until the profit rate is positive again. Rinse and repeat.
In feudalism exploitation was unproductive, surplus labour was extracted and consumed by the aristocratic elites. The landlord is an unproductive exploiter. The money capitalist, on the other hand, is a productive exploiter. Because of free labour and competition between capitalists, the more productive capitalist can extract more surplus value from his workers. This raises the organic composition of capital, the economy gets more and more productive so that less and less worker are needed and this destroys the only source of profit (human labour), that’s why the profit rate has to fall, causing crisis and unemployment.
Now, imagine that workers have control over money capital. In that case a falling rate of profit wouldn’t stop production. Workers are only interested in their wages, not in profits. Zero or negative profits would be no reason not to invest as long as there are useful things to produce for a positive wage. Productivity would no longer be dependent on profits.
“Ownership of “real capital” won’t establish the social relation necessary for capitalism”
I guess your argument here is established by what you mean by “real capital…” Without pretending to know what you mean by that term, I think it can be ignored. You probably simply misunderstood what anti-capital was saying, which is that capital is the product of an historically evolved social relation (i.e. from merchant capitalism to industrial capitalism). Not the other way around–that it pops up out of nowhere and creates whatever island fantasy social order it wants.
A world of robots and no workers is a bourgeois utopia, but one that actually presupposes the end capitalism, alienation and the beginning, not of “real capital”, but of real, un-alienated work. People like and need to work, but not as robots.
But maybe your fantasy wants to say something on this order, and I misunderstood you…
MMT is in action at the annual rate of $1 trillion p.a. and is being helicoptered from the NY FED via the REPO market into Wall Street. For it to be effective it must be inflationary which it is. Just look at the stock markets.
Well of course MMT does not specify HOW money created in the central bank should be spent…..good government would eliminate the financial derivatives casino entirely.
Sorry for this detour Dr. Roberts but I wanted to share this talk with you. It is a big concern. Maybe you could review it or pass it around. Thanks.
Less than 2 minutes in:
“The (large) number of people on the Left who insist neoliberalism isn’t real, or doesn’t exist ….The left doesn’t want to see Neoliberalism as a philosophical project”…
(I already know neoliberalism is an extension of classical liberalism)
Well, if he begins with nonsense like this, why should I listen to the remaining 1.5 hrs?
He does make a solid case for weaknesses in the Left tackling neoliberalism, and supplies cogent insights on how they managed to frame the discourse.
The last half and hour is questions, so you don’t need to listen to all of it.
I tried to watch this presentation, but the sound reproduction on my computer was too muffled to be understood. However, given Mirowski’s smirks and blanket assertion that “leftists” and “marxists” don’t understand or believe in neoliberalism, it was easy give up and go somewhere else.
Actually, living on a precarious teacher’s pension among the homeless in California, I daily experience neoliberalism, and, as a marxist, I think I know what philosophical (theoretical) neoliberalism is: the all too real, destructively productive, capitalist mode of war and pollution, but idealized as a magically digitalize post industrial abstraction from the real world of its global “social relation” (i.e. from its alienated prey: the global working class) and personified by “start up” star entrepreneurs and the (farcically) charismatic leaders of its fully incorporated capitalist state.
Socialism or barbarism” remains more true today than ever.
No it is not an extension of classical capitalism. He goes into the hostory more in a written article that is online. Just search his name.
“But the belief that social problems have monetary/financial origins and could be resolved by tinkering with money and financial institutions, is fundamentally flawed.”
An underlying problem is, ANY SYSTEM AND/OR PROCESS CAN BE CONTROLLED & MANIPULATED (and eventually WILL be).
Former mobster Whitely Bulger once commented on how the mob seeks to control ANY entity that controls/deals with vast sums of capital [& power].
The “Mob” mentality afflicts many others outside the formal “Mob” structure.
Point is, extreme wealth & power attracts those merely attracted to such.
Consider that the U.S. was founded by people seeking to escape the influence & control of the British Monarchy by the wealthy elite (read the works of Thomas Gordon & John Trenchard regarding the repeated financial bubbles of 18th century Britain in their Cato’s Letters. The Boston Tea Party was a revolt against not just taxes, but against the restraint on private enterprise & trade by politically well-connected corporations controlled by the elite).
But the U.S. has devolved back from whence it sought to escape.
Contemporary U.S. economics greatly resembles that of 18th century Britain (despite the change in terminology/phraseology).
Crony-corporatocratic capitalism.
A “socialist” economy (i.e. economic system of central control & planning, basic central tenets of “socialist economies”) often come under control of those seeking control of the wealth, capital & power under that central control, for selfish gains.
In a (likely misguided) essay written by Albert Einstein and published in May 1949 titled “Why Socialism?” he wrote:
“Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature.”
But it’s not only private capital that tends to become concentrated in the hands of a few.
“Public” capital typically follows the same pattern (as greed & wealth seekers seek control of the systems that control/manage that public capital).
Given that MOST EVERY SINGLE ASPECT of the U.S. economy is guided by central control & planning (starting with the privately owned Fed, which is owned/controlled by the largest national banks, and which functions to determine interest rates, money supply, market investment, etc), one can see that the U.S. economy is truly one of SOCIALISM for the RICH.
EVERY President of the U.S. of recent has supported this corrupted system (yes, even Herr Trump, whom, despite his empty rhetoric rallying against “socialism” has continued to fully support this socialism for the ultra-wealthy).
As noted by Jean Jacques Rousseau in his “Social Contract”:
“Man is born free, and everywhere he is in chains. One man thinks himself the master of others, but remains more of a slave than they are.”
This is how politics truly works.
As Alexis de Tocqueville wrote in 1862:
“The last thing abandoned by a party is its phraseology, because among political parties, as elsewhere, the vulgar make the language, and the vulgar abandon more easily the ideas that have been instilled into it than the words that it has learnt.
-France Before The Consulate, Chapter I: “How the Republic was ready to accept a master”, in Memoir, Letters, and Remains, Vol I (1862), p. 266
Phrases like “capitalism”, “market economy”, “socialism”, “freedom”, “liberty”, etc. have become mere phrases, widely detached from their true meanings.
The former Age of Enlightenment has been destroyed by renewed, growing & vast ignorance.