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The Minsky Thesis: Keynesian or Marxian?

Steve Keen, Department of Economics and Finance, University of Western Sydney Macarthur, Australia.

ABSTRACTThe short answer to the question of whether Minsky was Keynesian or Marxian is thathe was both. The long answer is far more complex, and must acknowledge four congenitalweaknesses in the development of non-neoclassical economics. These are the absence of adefined intellectual tradition, the lack of an explicit pedagogy, the pervasive demonologywithin mainstream economics education which demeans the contributions of those outside thecorral of conventional wisdom, and the prevalence of misinterpretation in the development of economic theory. All the above issues apply to Minsky, so that determining his intellectualfoundations requires informed reconstruction as much as it does a careful examination of hisacknowledged references. His references tell us that the Financial Instability Hypothesis was aconscious blend of Kalecki’s “Principle of Increasing Risk”, Fisher’s “Debt Deflation Theoryof Great Depressions”, and lastly Keynes’s

General Theory

“with the Prince”. Reconstructionindicates that Marx’s neglected dialectical analysis provides a sound foundation for the crucialMinskian concept of two price levels in capitalism.1

The short answer to the question of whether Minsky was Keynesian or Marxian is, of course,“Yes: he was both”. The long answer is far more complex, and must acknowledge severalcongenital weaknesses in the development of non-neoclassical economics.The first two weaknesses are the absence of a defined intellectual tradition, and theconcomitant lack of an explicit pedagogy. While the neoclassical school has no genuineappreciation of the history of economic thought, the essence of the neoclassical paradigm isdistilled in economic textbooks, and each new generation of neoclassicals unconsciouslyabsorbs the creeds of Bentham, Say, Jevons, Walras and Debreu by learning how to recitetextbook dogma. On the other hand, each new major non-neoclassical intellect potentiallybegins in an effective vacuum, and frequently discovers that he or she has intellectualpredecessors only by groping blindly backwards through the forest of original works thatconstitute the intellectual history of our discipline.The third weakness is the presence of a pervasive demonology within mainstreameconomics education, which demeans the contributions of those outside the corral of conventional wisdom. Even economists who are endeavouring to escape from the clutches of orthodoxy fall foul of this. Thus even Keynes could write of

Das Kapital

that it is “an obsoleteeconomic textbook which I know to be not only scientifically erroneous but without interestfor the modern world” (Keynes 1925:258), allegedly without having read the original.The final weakness is the prevalence of misinterpretation in the development of economic theory. Economists might like to believe that they can “see so far because they standon the shoulders of giants”, but it is closer to the truth to say that economists tend to stand ontheir toes. This is obvious enough (to a non-neoclassical audience) with regard to Keynes, thetextbook IS-LM interpretation of whom is an acknowledged travesty. But the same situation,I contend, applies to Marx as well—with his supporters as well as his detractors beingcomplicit.2

1Kalecki and Increasing Risk

Minsky’s model was the typical Hansen-Samuelson construct:(1)

(

)

−

where

is output,

the average propensity to consume, and

the desired incremental stock to output ratio (or the marginal propensity to invest). The accelerator coefficient

wasgreater than four, which generated a monotonic and extremely rapid increase in the magnitudeof

. Minsky argued that this mechanism could be used to explain the trade cycle if oneposited “that the value of

, the accelerator coefficient, depends on money-market conditionsand the balance sheets of firms” (Minsky 1957, 1982: 233). Minsky found the mechanism heneeded in Kalecki’s argument that the size of an investment a firm would undertake waslimited by increasing risk as the proportion of debt financing rose (Kalecki [1937] 1990:285-293).Kalecki considered an entrepreneur with capital

to invest, a given method of production, an expected stream of returns and hence an expected internal rate of return

.These could be combined to yield the prospective gross profit . To work out the

All the above issues apply to Minsky, so that determining his intellectual foundationsrequires informed reconstruction as much as it does a careful examination of his acknowledgedreferences.His references indicate that the first impetus for his movement away from orthodoxywas given by Kalecki, whose “Principle of Increasing Risk” provided a means by whichMinsky provided a finance-induced turning point to the upward movement of amultiplier-accelerator model of the trade cycle (Minsky [1957a ]1982: 243).3