Minsky on Banking: Early Work on Endogenous Money and the Prudent Banker

Levy Economics Institute of Bard College Working Paper No. 827

28 Pages Posted: 11 Jan 2015

See all articles by L. Randall Wray

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: January 9, 2015

Abstract

In this paper, I examine whether Hyman P. Minsky adopted an endogenous money approach in his early work — at the time that he was first developing his financial instability approach. In an earlier piece (Wray 1992), I closely examined Minsky’s published writings to support the argument that, from his earliest articles in 1957 to his 1986 book (as well as a handout he wrote in 1987 on “securitization”), he consistently held an endogenous money view. I’ll refer briefly to that published work. However, I will devote most of the discussion here to unpublished early manuscripts in the Minsky archive (Minsky 1959, 1960, 1970). These manuscripts demonstrate that in his early career Minsky had already developed a deep understanding of the nature of banking. In some respects, these unpublished pieces are better than his published work from that period (or even later periods) because he had stripped away some institutional details to focus more directly on the fundamentals. It will be clear from what follows that Minsky’s approach deviated substantially from the postwar “Keynesian” and “monetarist” viewpoints that started from a “deposit multiplier.” The 1970 paper, in particular, delineates how Minsky’s approach differs from the “Keynesian” view as presented in mainstream textbooks. Further, Minsky’s understanding of banking in those years appears to be much deeper than that displayed three or four decades later by much of the post-Keynesian endogenous-money literature.

Keywords: Banks, Deposit Multiplier, Endogenous Money, Financial Innovation, Financial Instability Hypothesis, Horizontalists, Minsky, Originate to Distribute, Prudent Banking, Say’s Law, Securitization

JEL Classification: B3, B50, B52, E2, E4, E5

Suggested Citation

Wray, L. Randall, Minsky on Banking: Early Work on Endogenous Money and the Prudent Banker (January 9, 2015). Levy Economics Institute of Bard College Working Paper No. 827, Available at SSRN: https://ssrn.com/abstract=2547803 or http://dx.doi.org/10.2139/ssrn.2547803

L. Randall Wray (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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