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Cover Page -- Stabilizing an Unstable Economy -- Copyright Page -- Contents -- Foreword -- Preface and Acknowledgments to the First Edition -- Minsky's Stabilizing an Unstable Economy: Two Decades Later by Dimitri -- Part 1: Introduction -- 1. Economic Processes, Behavior, and Policy -- Part 2: Economic Experience -- 2. A Deep Recession But not a Depression in 1975: The Impact of Big Government -- 3. A Deep Recession but not a Depression in 1975: The Impact of Lender-of-Last-Resort Intervention -- 4. The Emergence of Financial Instability in the Postwar Era -- Part 3: Economic Theory -- 5. Perspectives on Theory -- 6. The Current Standard Theory: The After-Keynes Synthesis -- 7. Prices and Profits in a Capitalist Economy -- 8. Investment and Finance -- 9. Financial Commitments and Instability -- Part 4: Institutional Dynamics -- 10. Banking in a Capitalist Economy -- 11. Inflation -- Part 5: Policy -- 12. Introduction to Policy -- 13. An Agenda for Reform -- Appendix A: Financing Structures -- Appendix B: Consumer Prices and Real Wages -- Index.

A partir de una lectura de Keynes, según la cual la Teoría general sienta las bases para una teoría de la inversión del ingreso agregado y una teoría financiera de la inversión, el presente trabajo se concentra en una cuestión que suele ser relegada por las teorías económicas en boga: el papel trascendental que desempeñan las instituciones financieras y el dinero en una economía capitalista. Al no lograr que los activos rindan, aquéllas propician una reducción en el financiamiento del consumo y el gasto de inversión, con lo que se genera una disminución de las inversiones y el gasto de consumo, lo cual, a su vez, incide en el flujo de ganancias y salarios. Hay que descartar la idea de que en esta economía existe un equilibrio general y, a la vez, desprenderse de la teoría cuantitativa del dinero. Asimismo, si se invalida el supuesto sobre la capacidad de anticipar perfectamente el futuro, es posible concluir que dichas instituciones sufren una gran incertidumbre inherente. El rendimiento general mejora gracias a la habilidad del Estado para intervenir y sostener la solvencia, fortaleciendo los recursos mediante el gasto sustancial y sin restringirse al financiamiento del consumo. Tras estudiar, por un lado, la estructura financiera y, por otro, el flujo del ingreso —en específico las ganancias agregadas—, este trabajo propone un modelo formal integrado.

Once again the United States economy is facing a crisis, resolution of which first requires the realization that there are many types of capitalism: Solutions implemented in the past, therefore, may or may not be an appropriate solution today, as they could have been implemented as an answer to a problem posed within the context of a different model. Alternatively, the solution may lie in the implementation of a totally new economic regime in answer to reoccurring problems inherent in capitalism in general. The implementation of a new model is not a unique happening in United States economic history. The interventionist model-set in motion by President Roosevelt in answer to the failure of the laissez-faire model in the 1930s-dealt with the obvious flaw inherent in capitalism in general namely, its inability to maintain a level of aggregate demand consistent with full employment. Implementation of the interventionist model prevented a massive depression of the type experienced in the 1930s from being repeated due to the larger role played by the government sector in maintaining demand via active fiscal policy, while moderating inflation through the use of monetary policy. The interventionist model also recognized the less obvious, deeper flaw of capitalism-namely, the manner in which the financial system can adversely affect the price of assets relative to that of current output. Absent any interventionist policy, the resulting decline in private investment and profits leads to a downward spiral and collapse of the financial sector. The institutional roadblocks included in the interventionist model were sufficient to avert large disequilibriums in asset and output prices, thereby sustaining profits and precluding a deep recession. (Indeed, the Federal Reserve was not forced to act to avert a financial crisis until 1968, when problems arose in the commercial paper market.) The interventionist model, however, was abrogated during the 1980s with the reinstitution of a new laissez-faire model. The new model eliminated many of the restrictions imposed on financial sector, massive increases in national deficits through unproductive public sector spending (made even more inefficient by the resulting interest on the debt), and the growth of speculative financing schemes that left us with too many highly indebted firms. A large, financially induced depression was contained only through the reintroduction of massive governing monetary and fiscal intervention in the form of the S&L bailout and the maintenance of profits with massive deficits. Although the subsequent drop in interest rates has resulted in a rise in asset values and somewhat abated the turmoil in the financial markets, the economy continues to stagnate.

The Financial Instability Hypothesis (FIH) has both empirical and theoretical aspects that challenge the classic precepts of Smith and Walras, who implied that the economy can be best understood by assuming that it is constantly an equilibrium-seeking and sustaining system. The theoretical argument of the FIH emerges from the characterization of the economy as a capitalist economy with extensive capital assets and a sophisticated financial system. In spite of the complexity of financial relations, the key determinant of system behavior remains the level of profits: the FIH incorporates a view in which aggregate demand determines profits. Hence, aggregate profits equal aggregate investment plus the government deficit. The FIH, therefore, considers the impact of debt on system behavior and also includes the manner in which debt is validated. Minsky identifies hedge, speculative, and Ponzi finance as distinct income-debt relations for economic units. He asserts that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system: conversely, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a "deviation-amplifying" system. Thus, the FIH suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by hedge finance (stable) to a structure that increasingly emphasizes speculative and Ponzi finance (unstable). The FIH is a model of a capitalist economy that does not rely on exogenous shocks to generate business cycles of varying severity: business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

Deposit insurance, the savings and loan industry, facets of the insurance industry, and a significant number of private banks have all been plagued by recent collapse. The legislative agenda goes beyond merely funding the shortfall in deposit insurance funds: Congress has suggested that reforming the deposit insurance function, as well as the associated regulatory and supervisory structure, is imperative to avoid a recurrence of Treasury financing. An assessment of the problem, and also the prescriptions for a cure, rely on the particular theoretical perspective of the observer. The Smithian view asserts that markets always lead to the promotion of public welfare, while Keynesian theory states that market processes may lead to malfunction of the capital development of the economy-that is, something other than the promotion of public welfare. For example, the crisis in finance during 1991 is largely a delayed response to the experiment in practical monetarism that occurred from 1979 to 1982. In typically simplistic fashion, monetarism suggests that inflation is always the result of too much money chasing too few goods: Hence, controlling inflation rests on controlling money supply. The fundamental flaw in the Bush administration's proposals is that they subscribe to a Smithian theme. They impute the problems afflicting the finance industry (e.g. lack of capital development of the economy) to a minor flaw in the institutional structure rather than to basic characteristics of the economy. The recommendations submitted in the paper are inherently distinct from the administration's proposal and have evolved from a Keynesian model of the economy specifying the processes and determinants of the performance of the economy.

The presentations at this conference are by economists from Academies and economists who professionally confront real world problems, either in private finance or in public policy. As economists we accept that the remarks made by Keynes in the closing passage of The General Theory are true: ". the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. .I am sure the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. . Soon or late it is ideas, not vested interests, which are dangerous for good or evil." We like this assertion not only because it makes us important but also because it makes good sense. The ideas that Keynes refers to are theories. A theory prior for rational action. A of system behavior is a proposed action, whether by individual agents in households or firms, a bank, a government agency or a legislative body is appropriate action only as a theory connects the action to the desired result. Because some institutions, such as deposit insurance, the savings and loan industry, and a number of the great private banks, that served the economy well during the first two generations after the great depression, seem to have broken down, the need to reform and to reconstitute the financial structure is now on the legislative agenda. As we try to fix the financial system three questions should be asked of the pushers of a policy proposal: 1. "What is it that is taken to be broke?", 2. "What theory about proposal?" 3. What are the dire consequences of not fixing that which you assert is broke? In what follows I will take up three points 1. Two views of the results of the economic process 2. Systemic and idiosyncratic sources of financial crises 3. Some ideas about the scope for policy in the present "crisis".