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John Maynard Keynes Paperback – April 16, 2008
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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.
The second topic covered through most of the remainder of the book consists in the correct interpretation of Keynes according to Minsky and the integration of Minsky's own theory of crisis within Keynes' framework. Minsky attempts to do both simultaneously. And, he generates a rather awkward narrative. Minsky acknowledges numerous times that Keynes did not advance a logical model of bubbles and crises. He also adds that Keynes ignored the dynamics of the debt side of the balance sheet of households, companies, banks, and governments. And, that's where Minsky's own brilliant theory comes in. And, that is why he is one of the most praised economists in this post-housing crisis era.
However, Minsky contradicts himself. If Keynes ignored the dynamics of debt and its impact on bubble and crisis, how could Keynes be interpreted so as to include those concepts he so explicitly missed? Yet, that is what Minsky is attempting to persuade the reader off. In other words, he suggests that Keynes and him are essentially one. If you had correctly interpreted Keynes you would have also deducted Minsky's crisis theory as part of the original Keynes foundation. That's a very bizarre leap.
It remains unclear what Minsky truly added to Irving Fisher's The Debt-Deflation Theory of Great Depressions written three decades before Minsky's first work on the topic. Minsky is a brilliant economist on certain counts. But, I find him a very ineffective writer (if this book is representative) especially relative to Irving Fisher.
If you want to understand Minsky, instead of reading his own writings, I recommend the far clearer book written by Charles Kindleberger Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics). Minsky's basic concept is that the credit cycle exacerbates the business cycle because lenders lend excessively when collateral values go up and don't lend enough when they go down. Lending and asset values (collateral) create a positive feedback loop causing both asset bubbles and crashes. Although, this is a pretty straighforward concept (and a brilliant insight) Minsky is hardly able to articulate it clearly. Fortunately, Kindleberger does an excellent job of it on his behalf. It is almost like Minsky is a brilliant scientist who writes in a foreign language, he only knows. And, Kindleberger is the brilliant translator who can make sense of it all and clearly explain it to the rest of us.