Minsky as a critic of Keynesianism

Riccardo Bellofiore summarizes
Minsky’s financial instability hypothesis (FIH), points out some of its weaknesses
and some misinterpretations by other economists, and presents a version of the
FIH that is consistent with the way in which financial capitalism has evolved.
In the original formulation of the FIH, “after a period of ‘tranquil’ growth and
robust finance, units’ liability structures tend to shift towards fragility, so that the 2
Introduction
economic system becomes prone to financial crises.” Bellofiore refines this idea
by developing in more detail Minsky’s concept of “money manager capitalism,” an
economy characterized by big corporations, large banks and financial institutions,
and such new intermediaries as mutual and pension funds. These are dominated by
money managers, whose concern is the appreciation of the investments of liability
holders. In the US, a major crash was avoided after 1980 first by Reagan’s large
fiscal deficits and then by the rapid growth of consumer debt. In the more recent
period, the activity of the money managers resulted in an overcapitalization of
productive enterprises, culminating in the collapse of the subprime bubble and the
emergence of the Great Recession. For the future, Bellofiore recalls and endorses
Minsky’s suggestions for the mitigation of the business cycle: “A larger, not a
smaller, role for the State; a low, not a high, private investment policy; serious
controls on how capital moves and investment is financed; a bias against giant
financial institutions.”