Understanding Financial Instability: Minsky Versus the Austrians

36 Pages Posted: 19 Dec 2014 Last revised: 4 May 2017

Date Written: December 17, 2014

Abstract

Although Minsky’s interpretation of Keynes’s macroeconomics and essential message clashes with authoritative alternative interpretations, it has become increasingly influential during the years following the Global Financial Crisis, even in mainstream circles. This paper offers a critical evaluation of Minsky’s Financial Instability Hypothesis from the perspective of the alternative Austro-Wicksellian paradigm. Although some of the similarities and/or analogies between Minsky’s approach and that of the Austrian School suggest a more than merely superficial affinity between the two theoretical frameworks and although some scope for cross-fertilization between and even partial theoretical integration of both approaches can be found, at a fundamental conceptual level both theories remain incompatible and difficult if not impossible to reconcile, in particular in terms of fundamental causality and in terms of policy conclusions and prescriptions. Despite the fact that Minsky’s policy conclusions are multifaceted and somewhat eclectic, they manifest a lack of familiarity with the conclusions of the Austrian analysis of the problems of central planning by Big Players such as Big Bank and Big Government. Both approaches also offer contrasting interpretations of the historical experience of the Global Financial Crisis.

Keywords: Financial Instability, Business Cycle, Minsky, Austrian School

JEL Classification: B51, B53, B59, E12, E14

Suggested Citation

Van Den Hauwe, Ludwig, Understanding Financial Instability: Minsky Versus the Austrians (December 17, 2014). Available at SSRN: https://ssrn.com/abstract=2539839 or http://dx.doi.org/10.2139/ssrn.2539839

Ludwig Van Den Hauwe (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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