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INTRODUCTION
Is the financial structure - the market interactions between borrowers and
lenders and the balance sheets of non-financial firms, intermediaries and
households that reflect these interactions - a significant detenninant of
the pace and direction of a capitalist economy's aggregate activity? For
the past ISO years, the basic fault lines in monetary macroeconomics have
been established according to how various schools respond to this question
of whether financial structure matters in determining macroeconomic
outcomes.
Contemporary research from both the post-Keynesian and Marxist
traditions have answered in the afflJUl3tive, advancing several fundamental
arguments as to why financial structure matters. The most important of
these include the following:
97
98 Money and Finance Marxian and Post.Keynesian Developments 99
3. Financial fragility, as measured by an increase in debt obligations This chapter is a survey and therefore applies broad brush strokes to a
relative to the ability to service these commitments, emerges through range of topics. Even so, it is not possible to consider several important
endogenous market practices, including the forces on the real side of issues, including theories of the determination of interest rates and a range
the economy that generate a tendency toward downward profitabil- of policy-related questions. 2 However, perhaps the discussion of the
ity as the accumulation process proceeds. The emergence of financial selected topics may also shed some indirect light on the neglected questions.
fragility creates the preconditions for financial crises and contributes Finally, by way of introduction, I must issue a caveat emptor. While
to aggregate instability. this is a survey, it does not pretend to be balanced. The issues and authors
4. The financial market is an important site of inter-class and intra-class considered here rellect my own interests and judgements as to the relative
conflict, especially as manifested through the policies of central merits of various positions. I also cite my own work extensively. Delusions
banks and other important governmental institutions. of grandeur aside, the explanation is that this is where more extensive dis-
cussions can be found for many of the arguments that are only lleetingly
The aim of this chapter is to follow some of the main strands of thought sketched here.
through which Marxian and post-Keynesian analysts have reached these
conclusions. In following these analytic trails, we will observe basic dif-
ferences in the two approaches. The most important is the far greater weight
CONFLICTING APPROACHES TO MONETARY
post-Keynesians give to psychological factors, and Marxists to material MACROECONOMICS
forces, in determining the sources of financial dislocations and macro-
economic instability. Another key difference is that Marxists place Throughout most of the history of economics, mainstream analysis has
considerable importance, even in the analysis of financial issues, on the embraced the view that financial structure does not matter in any funda-
role of class and power. Post-Keynesian financial analysis has never mental way. This includes the initial developments of the quantity theory
by Hume and iUcardo, continuing with the arguments of the Currency
seriously embraced this concern.
School in the I 840s, and on to the modern monetarist and New Classical
While pointing out these differences, I will also argue a point already
schools. The common thread running through these approaches is the view
suggested in this introduction: that the areas of common ground between
that money - and financial markets more broadly - are 'neutral' at least
these two schools are quite large, especially when compared with the fun-
in the long run, in the sense that long-term relative prices, incomes and
damental differences each has with most mainstream approaches. I will
outputs do not depend on the quantity of money. At thesarne time, in this
attempt to show how both can be fruitfully deployed in understanding some
view, the general level of prices is determined exclusively by the quantity
of the central events in the area of monetary macroeconomics in recent
of money, so that changes in the price level- inflations and deflations-
years. are entirely the result of changes in the quantity of money. But changes
First, I explore the roots of the contemporary post-Keynesian and
in the quantity of money - and here is the final key idea - are themselves
Marxian schools. This will lead to a discussion of the contributions of not determined by financial market forces, but by forces exogenous to the
Keynes and Marx themselves in this sphere ofanalysis. The work of both financial market. These include the discovery and subsequent circulation
figures is open to a wide range of interpretation and one of the major projects of new sources of the precious metals serving as commodity money; the
of the contemporary post-Keynesian and Marxian thinkers has been the import of new supplies of commodity money; or, under a credit money
reinterpretations they have provided of the classical canon. I then survey system, the creation of new money by the government. 3 •
the range of contemporary empirical phenomena that orthodox theory has The modern formulation of this perspective, led by Professor Milton
proven incapable of explaining adequately. A major inspiration for the Friedman, has of course been extremely influential. But monetarists and
development of heterodox theory has been to provide systematic answers New Classicals are not the only post-war schools which cast aside financial
to what appear as anomalous or random occurrences from an orthodox market considerations in their theoretical models. Mainstream Keynesians,
framework. The chapter then considers the developments in the two con- prior to some recent developments in the area of asymmetric information
temporary schools. This will also enable us to sort out both the and credit rationing, followed the IS-LM framework initiated by Hicks
commonalities and differences between them. in accepting that financial institutions and market forces could be adequately
100 Money and Finance Marxian and Post· Keynesian Developments 101
characterized within a model which focused only on money supply and satisfaction with the facile assumptions underlying the quantity theory-
demand rather than a broader array of institutional variables. The that the notion oflong-run money neutrality was necessarily consistent
Keynesians primary dispute with monetarists here was over the degree with all short-run periods of transition from one price level to another.
of interest-elasticity of the money demand function, and this only weakly Keynes sought in the Treatise to specify the channels through which
established any independent influence for private market forces in deter- changes in the quantity of money are transmitted via the financial structure
mining aggregate activity. Beyond this, orthodox Keynesians accepted to changes in the price level; and, in partiCUlar, what the short-period
Modigliani and Miller's conclusion that financial structures were 'irrelevant' mechanism is through which these changes can occur without funda-
for the valuation of non-financial firms, and, by implication, for broader mentally affecting real variables. His argument was that changes in money
macroeconomic outcomes as well. 4 leads to increased business financing, which in tum increases demand.
The opposing position, that the financial system is an important inde- But the new output associated with the growth of demand is not yet in
pendent variable for aggregate outcomes, was first articulated by Thomas place, and therefore the excessive demand raises prices. While this
Tooke and other members of the Banking School, in their debate with argument does not contain Keynes's more developed thoughts on the nature
the currenl1chool over the 1844 Banking Act in Britain. Tooke developed of investment, it nevertheless offers a deep institutional analysis of
what we may call a 'credit theory of money'. financial markets consistent with his later ideas on the independence of
Tooke advanced two primary arguments that carry relevance today: firs~ finance from saving.
there is a fundamental identity between different financial instruments, In the General Theory itself, Keynes put aside the institutional analysis
so that theory needs to focus on the array of instruments rather than on of the Treatise, focusing instead on the broader theoretical issue of deter-
any single one; and second, the creation of credit by intermediaries takes mining effective demand. Nevertheless, financial markets and practices
place only because the non-bank public demands its creation. Thus, from still playa fundamental role in the GT. The central argument of the GT
Tooke, we begin to develop a theoretical framework in which, contrary is that capitalist economies are unstable because investment spending is
to modem orthodoxy, broad credit conditions rather than narrow monetary liable to fluctuation. Investment spending fluctuates because investment
aggregates are the focus of concern; and that demand forces, relative to decisions are necessarily based on uncertain estimates of future profitability.
supply, are given at least as important, if not more prominen~ a role in
This is where financial markets become crucial to his argument
determining financial market behaviour.s
Keynes explains that financial markets are organized because investors
want to maximize the liquidity of their assets, thereby reducing the uncer-
tainty associated with investment decisions. But by doing so, financial
KEYNES, MARX AND THE 'CREDIT THEORY OF markets also contribute to encouraging specUlation and an informational
MONEY' climate dominated by short-term concerns of 'liquid' investors. This only
contributes to the uncertainty surrounding investment decisions, height-
The ideas of both Keynes and Marx on financial questions have been subject ening the volatility of investment and aggregate demand.
to widely varying interpretations. At least in part, this is due to the Considering Keynes through both the Treatise and the GT, we can discern
different views they themselves expressed under varying circumstances
two reasons why financial markets matter for macroeconomic outcomes:
and while operating at different levels of abstraction. It is also due to ambi-
because money and credit are generated through complex institutional
guities or changes in their thinking. But the argument developed by
processes, not through simple mechanisms via the central bank and private
contemporary post-Keynesians and Marxists would regard the overall thrust
saving; and because the financial market deepens the degree of uncertainty
of their work squarely within the creditist tradition established by Tooke.
and instability necessarily associated with private investment decisions.
Keynes6
Marx
Keynes, of course, was primarily a monetary specialist prior to writing
the General Theory (Gn. However, his work was largely within the Marxian economics had until recently almost completely overlooked
framework of analysis defined by the quantity theory. But even prior to monetary and financial phenomena, but Marxian economists are now
the GT, and in particular in the Treatise on Money, Keynes expressed dis- drawing out the central role Marx himself assigned to money and finance?
Marxian and Post-Keynuian Developments 103
102 Money and Finance
The first point one obtains from this literature is the indisputable one that the financial sphere into the analysis, it is unclear, as Crotty has argued,
Marx himself actually focused extensively on financial questions in all 'why a fall in the rate of profit should lead to crisis at all; a lower but positive
his major writings on economics. More controversial, of course, is the rate of growth is a more logical outcome of a decline in the profit rate
relative weight Marx assigned to these issues. From the perspective of taking only production relations into consideration' (Crotty. 1985 p. 48).
macro analysis, recent interpretations have argued that these financial factors
are of substantial importance - and perhaps of even equal weight relative
to contradictions in the real economy - in understanding the sources and THE FAILURES OF ORTHODOXY
dimensions of macroeconomic instability.
For our purposes, Marx's most important insights on money and finance Of course, contemporary developments in post-Keynesian and Marxian
emerge in Volume ill of Capital and Theories of Surplus Value, when monetary macroeconomics have not emerged in a vacuum, They rather
he is discussing economic crisis. Here, Marx operates at a relatively low result from two interrelated sources: the failure of mainstream theory to
level of abstraction, reaching the point where the Tookian understanding offer a coherent explanation of the phenomena they purport to explain,
s and thereby to provide effective guidance on policy issues; and the rise
of financial institutions and markets becomes important. From this
discussion we see why the role of finance is an integral part of Marx's of financial instability in the first and third worlds, which have produced
understanding of macroeconomic instability. tremendous human costs.
In Marx's analysis, credit is integral to the development of the circuits The failures of mainstream theory are pervasive. Thus, orthodox
of industrial production and exchange. The existence of credit stimulates monetary policy is predicated on the central bank's ability to define,
industrial and commercial activities by underwriting them, thus allowing measure and control the growth of 'money' . But contrary to the most basic
them to advance more rapidly than they would otherwise. As the credit tenets of orthOdox theory, Friedman and Kuttner have recently shown (1992)
structure expands in tandem with the production process, it develops a that, for the US economy over the past thirty years, there is no consistent
degree of relative autonomy from production and commodity exchanges. relationship between money and credit aggregates, and contemporane-
This means that the financial structure develops its own fomis and rhythms ous or subsequent movements of nominal incomes, prices, or interest rates.
of operation; techniques of ,credit extension and the extent of financial In fact, this breakdown of orthodox theoretical and policy models is
leveraging burgeon. Marx recognized that a sophisticated financial system one consequence of a broader phenomenon: the emergence of frequent
can create self-generated dislocations and crises. However, these crises and increasingly severe financial dislocations over the past twenty-five
will affect the spheres of industry and commerce 'only indirectly' as long years. Such dislocations had not occurred for roughly the first twenty years
as these latter spheres are functioning soundly, that is, 'as long as the repro- of the post World War II period, even though they were, as Kindleberger
duction process is continuous and therefore the return flow' of revenue (1977) has put it, 'a hardy perennial' of the previous history of capitalism.
is assured (Marx, 1967, p. 483). Indeed, in the 1960s high noon of macroeconomic fine-tuning, such
To explain aggregate instability, we must return to the fundamental notion phenomena were considered relics of a bygone era.
in Marxian crisis theory, which is a falling average rate of profit. For Marx, But since the mid-1960s, we have seen the process of financial innovation
the tendency towards a falling average profit rate emerges from contra- gather relentless momentum, circumventing, and then rendering ineffecrual,
dictions on the real side of the accumulation process. Nevertheless, there the system of financial regulation created during the Depression. The
are two reasons why money and finance playa central role within this monetary decontrol legislation of 19808 and 1982 merely formalized the
crisis framework. Firs~ the flexibility of a developed financial system allows by-then effective collapse of the financial regulatory structure. In addition;
the real sector to 'seek to break through its own barriers and to produce since the 1966 credit crunch, financial crises have recurred regularly-
over and above its own limits' (Marx, 1968, ill, p. 122). In addition, this
in 1970 (penn Central), 1974 (Franklin National), 1980 (silver market),
stretching of fmancial resources creates the conditions in which a downturn 1982 (Latin American debt), 1984 (Continental Dlinois), 1987 (stock
in real sector profitability will produce a general crisis of the system.
market), and 1989 (stock market, junk bonds). The unexpectedly long
Without the financial fragility which accompanies the profitability
recession and sluggish recovery of the early 1990s was also largely due
downturn, it would be far easier for the system to live with a lower profit
to the excessive levels of private indebtedness incurred in the 19808.9
rate, along a relatively stable growth path. Thus, without incorporating
104 Money and Finane. Marxian and Post-Keynesian Vev.lopnunts lOS
I
instability comparable to the post-Keynesian framework.
angle through which the Marxian framework may be used to identify the This lacuna in the contested exchange central banking model parallels
weaknesses within the post-Keynesian approach and to build construc- the neglect of financial forces - either as causal or propagating mechanism
tively from such critiques. _ in much of the Marxian research to date on macroeconomic instabil-
Keynes ended the General Theory with the observation that 'the out- ity. Most work has instead focused on the various factors within the real
standing faults of the economic society in which we live are its failure to economy which produce declining profitability and productivity - for
provide for full employment and its arbitrary and ineqUitable distribution example the wage squeeze; rising costs andlor declining efficiency of social
of wealth and income', (Keynes, 1936, p. 372). However, post-Keynesians, structures of accumulation; disproportionalities or deficient aggregate
much like Keynes himself, have never seriously addressed the implica- demand; and declining 'capital productivity' or organic composition of
tions of the existence of differential wealth and power in capitalist capital. 14
economies. This issue, of course, has been central within the Marxian Despite their neglect of finance, these models still serve a useful
Ii terature. #
purpose even within a framework of monetary analysis because they
One recent line of research that incorporates class and power consid- demonstrate the centrality of non-financial determinants of systemic
erations within financial analysis is the development of a 'contested instability to an extent that post-Keynesians never attempt. Working
exchange' model of monetary policy. This work has been developed from a far richer understanding of the production and distribution
most fully by Gerald Epstein and various associates (see Epstein, 1994 mechanisms, the task of Marxian analysis in the realm of money and finance
for a clear presentation of this approach and further references). Epstein's therefore becomes readily distinguishable from the post-Keynesian agenda.
most recent contributions acknowledges the significance of the post- Its purpose is to build the appropriate links between the real and financial
Keynesian position On money endogeneity, but then argues that the crucial spheres, recognizing them as complex interdependent systems. •
missing feature of the post-Keynesian endogeneity argument is the role Some work of this nature has been accomplished in recent years. both
of political forces in the formulation of central bank policy. at the theoretical and empirical levels. Foley (1986). for example, has
The contested exchange model is based on two principles. FIrst, it views developed a model derived from the circuits of capital in Volume n of
the state, and therefore the central bank, as a terrain of both class and intra-
class struggle. It also argues that policy is constrained by structural
( Capital. He shows the source of capitalist crisis as being systematic
changes in the underlying parameters of the accumulation process. The
I
I
110 Money and Finance Marxian and Post-Keynesian Developments 111
crisis begins with symptoms of overrapid expansion of the economy: rising in profitability are themselves capable of generating financial dislocations.
money prices of commodities, shortages of certain commodities and This view is in sharp contrast with that ofpost-Keynesians, who rely on
certain types of labour power, and high interest rates. These lead to a decline psychological factors - uncertainty and associated shifts in expectations
in profitability. The economy then reaches a turning point at which _ in deriving the links between accumulation, finance and instability.
aggregate demand and output turn down sharply and the demand for From a Marxian perspective, one could argue that both approaches
labour power falls. capture imponant features of reality but that the impact of material forces
Within this framework, Foley shows that the provision of financial assets should be regarded as more fundamental. Consider the case in which prof-
is itself an important phase in the circuit of capital which also operates itability could be sustained as accumulation proceeded. Financial crises
independently of the central bank's influence. For example, firms take could still result through psychological factors, as transmitted through a
on a level of indebtedness on the assumption that commodities can be sold flexible financial structure. However, the Marxian models suggest that
at a given mark-up. When that mark-up cannot be sustained, the firms' these financial crises would tend to be relatively brief and shallow as long
profit rate falls. At this point, the firms' debt burdens become unexpect- as profitability were high enough both to meet financial commitments and
edly severe and financial commitments more difficult to sustain. As firms sustain investrnent spending.
are unable to meet financial commitments, the financial system becomes
destabilized and new capital outlays will also decline. This creates the
preconditions for a financial crisis as well as a deepening real-sector CONCLUSION
downturn. Thus, from Foley's model, we see first, how crises can begin
in the sphere of production and exchange but are then transmitted into The most basic concern, however, is not simply to assess the relative merits
the financial sphere. We also see how the persistence of crises depends of the two approaches. It is rather to recognize that both the post-Keynesian
strongly on the persistence of financial imbalances that have grown and Marxian literature have advanced to the point where the various
during periods of accumulation. Foley concludes that 'without feedback elements of each can now be profitably combined in both theoretical and
through financial variables to capital outlays there is no reason why the empirical work as well as in the formulation of progressive policy alter-
system could not adapt smoothly and gradually to a lower markUp without natives. Borrowing David Gordon's (1993) term,.a new 'left structuralist'
a crisis' (Foley, 1986, p. 54).15 monetary macroeconomics needs to emerge, combining elements of
At an empirical level, I have traced through the relationship between flexible finance, investment uncenainty, and systemic forces generating
declining profitability and rising leverage of US non-financial corpora- interaciive profit and financial cycles. Class and power factors will
tions from the mid-1960s to 1980 (pollin, 1986). Declining profitability intersect with each of these other variables. The challenge in making such
in this period led to ~ corresponding decrease in corporate internal funds. an approach coherent and persuasive is considerable. And yet, the need
Corporations were thus faced with the options of either reducing investment for pursuing this task could not be more apparent.
spending to a level commensurate with the decline in internal funds,
reducing dividend payouts, or increasing borrowing to sustain spending
and dividend payouts at a level greater than that of profitability. I found
NOTES
a close correlation between the rise ofteverage and the decline in internal
funds, suggesting that while corporations did reduce investment spending 1. This chapter was originally presented as a paper at the confmnce, 'Comparisons of
as profitability declined, their reductions were not as great as the decline post-Keynesian, Classical and Marxian Economic Theorics·. DepartmeDl of Economics.
University of Utah, January 8-9. 1993. I benefited p-eat1y from the discussion of the
in profitability. And because they were unwilling to cut back sharply on paper at the conference. and especiallY from the comments of Duncan Foley, PapCr's
dividend payouts, they were forced to raise their level of borrowing. discussant, and Mark Glick. its editor.
Such increases in borrowing then contributed to financial instability 2. A policy-oriented project informed by the theoretical perspectives expton:d here i.
because the firms' subsequent investments did not generate sufficient Dymski, Epstein and Pollin ed. (1993).
3. A major impetus in the development of the quantity theory was to counter John Law's
increases in profits to finance the higher levels of leverage. t6 mercantilist argument that a country's wealth would rise with its ability to expon
The.most basic point of this and related research within the Marxian goods and import gold. The counter-argument developed by quantity theorists, led by
tradition has been to show that material forces associated with a decline David Hume, was that such an 'export-led ,rowth strategy' would only generate an
·.
112 Money and Finance Marxian and Post-KeynesiGn Develop",.nts 113
increase in lhc price level of the metal importing countt)'. and thus make its e.xpons concern (Foley. 1986) is that the term 'endogeneity' suggests that the creation of
less competitive in subsequent periods (see ~·s 1940 discussion of this). Interest on liquidity through the financial strUCture is unconstrained. His terminological p t is
Ihis question in Europe was of course greatly heightened by conjectures over the well taken. Substantively, as the discussion here shows, there is no sense in the strUc-
impact of the: vast ptecious meWlmporlS (rom the Americas. Indeed. in a famous passaae turalist post-Keynesian framework in which reserve creation ls unconstrained. But the
in his TrtlJtist on Money (1916), Keynes sumtised that the profit inflation engendered accommodative approach does contend that reserve creation is unconstrained in quantity
by the now of precious metals from the Americas during the sixteenth and seventeenth terms, but not price tenns.
centuries 'may fairly be considered the fountain and origin of British forei," investmenl' . II. Minsky's ideas are most fully presented in his own work (1986). Dymsld and PoUin
(Keynes 1976 p. 156). (1992) is a survey of Minsky's theoretical perspective, from which the present discussion
4. Recently, some important steps toward a financial market approach to monetary macro. borrows.
economics have been made by mains~ economists such as Benjamin Friedman, 12. A sampling of these would includeCIOtty (1994), Grabel (1992). WolfSon (1986). and
Alan Blinder. Joseph Stiglitz, and Ben Bemanke. BuUding from the theory ofimperfecl Franke and Semmler (1989).
information in financial markets. they have embraced the argument that the availabil. 13. Pollin and Alarcon (1988) is one effort to consider class forces acting on the IMP policy.
ity of credit and the quality of balance sheets are important determinants orthe rate of Felix (1994) is an outstanding effon to explain the debt crisis by synthesizin& pdst.
investment. Moreover, they accept the view that the money supply is not a key variable Keynesian monetary macroeconomics with some elements of elementary ethics.
in determining the price level and output. They recognize that. through increasing velocity, 14. The literature here ls considerable. Por. sampling of various perspectives with additional
the financial system is surficiently flexible to generate as much credit as might be needed references, see Union for RadIcal Political Economics (1986) and Cherry et aI. (eels:
to finance any given level of activity. Though operating from a different analytic 1987). Though the perspective is morolimited, Marglin and Schor (cds 1990) i. a1se
framework, [his mainstream approach has much in common with the work. in the late a stimulating collection. Two innovative. empirical studies on profitability decline are
J9SOs and early 1960s of Gurley and Shaw and Tobin. Faizarl (1992) is an interest. Michl (1988) and Weisskopf (1988).
ing discussion arauing that there is much in common in the New and contemporary 15. The essence of Foley's 8flUment is anticipated clearly by Marx in his ~oritS of Surplus
post-Keynesian perspectives. Delli Gani and Gallegati (1992) and these authors with Value:
Gardini (1994) develop fotmlll models incorporating elements of both New and POSt.
Keynesian thinking. Dymski (1994), however, argues thallhe distinctions aresi&nifteant The rate of profit falls because the value of constanl capital has risen against that
between New Keynesian notions of asymmetric information and credit rationing and of variable capital and less variable capital is employed. The fixed charges -
post· Keynesian ideas about uncertainty aocl systemic instability. This is one question interest, rent - which were based on the anticipation of a c:onstant rate of profit
deserving further expiorntion which. due to space considerations. will have to be and exploitation oflabour. remain Lhe same and in part cannot be paid. Henccaisis
bypassed here. (Marx 1968. Volume II. p. 516)
5. An excellent study of the development of Tooke's monetary framework is Amon
(1991). Dum6nil and Uvy (1989) have developed a model which demonstrates a 'law ofa
6. Davidson (1972) and Minsky (1975) were two pioneering reinterpretations of Keynes tendency toward increasing instability', which has features similar to Fole.y's model.
incorporating what we would now call post-Keynesian perspectives on money and finance. According to Dum6nil and Uvy, a declining rate of profit does not initially produce
7. Thus, for example, the survey articles on Marxian crisis theory by Wright (1977) and a lower rate of accumulation. but rather 'stricter management of capital'. that is, tiehter
Shaikh (1978) present no discussion of the role of finance in crises. Similarly, Howard control over the accumulation of inventories which in tum affects both demand and
and King's two volume His/ory of Marxian Economics (1989, 1991) offers only the capacity of the system to respond to shocks. Financial factors influence this
scanered discussions ofthe rote of money and finance in Marx generally. and nothing adjustment toward snieter mnnagement through several channels. One route is throueh
on this aspect in crisis theory. Among the initial contemporary Marxian authors who the relationship between interest rates and the management of inventories . As DUJ"nMil
explored this dimension of Man;'s work were Sweezy and Magdoff (1972, 1977, and Uvy write,
1981). De Brnnhoff (1976). Mandel (1978). Aglie.ta (1979). I.oh (1980) and Crony
(1985). a high rate of interest is an inducement for enterprises to management their inven·
8. The links between Tooke and Man; areexpJored in Amon (1984 and 1994). tories tightly. Short-tellD borrowing is costly, and conversely, excess liquidity can
9. Wolfson (1986) chronicles all but the most recent episodes. Pollin (1992) discusses be deposited in order to yield a considerable ........... Similarly, a low raleofinl=st.
the impact of hi,h debllevels on the re<:e5sion of the early 1990s. in relation to the cost of scalina down activity,ls an inducemeDt to ignore risin,
10. Desai (1987, 1989) provides a clear exposition of some general tenets of an endogeneity inventories and wait for the restention of demand. (Du.m&ill and Uvy 1989).
perspective relative to the exogeneity framework of analysis. Leading proponents of
the post· Keynesian accommodative view have included Nicholas Kaklor( t 970, 1985) The Dumtnil and Uvy model is also notable in thai it seeks to link the fealUl<S of its
Sidney Weintnlub (1978) and Basil Moore (1988), whose major book, HorizofJuJlists model with historical developments or advanced capitalist ecooomies. In another
and VerticaUsts, among many other writings on the SUbject, provides the most thor· parallel contribution. Shaikh (1989) has developed a model which differs from PoIey:s
oughgoing presentation of this approach. Major recent contributors to the structuralist in that it assumes no chan,e in intetm rates over the course or the cycle. Shaikh thus
view include Hyman Minsky (1982. 1986) Stephen Rousseaus (1985,1986), and James shows that even with constant interest rates, an increase in the quantity of deb( alone
Earley (1983). Wray (1990) provides an excellent overview of the development of the during the rising phase of a cycle becomes unsustainable when the rate or profit falls.
endogenous money theory and contemporary debates on the topic, as well as advancing 16. In a study of the 1930. DepteSsion in the US, D~il, Glick and Rangel (1987) found
original ideas in several important areas, especially the link between endogenous that the decline in profitability in the 19205 generated a comparable financial reaction
money and liquidity preference theory. Palley (1992a, 1992b) develops useful models to that which I observed for the 19705. In the 1920s.like the 1970s. corporations were
which incorporate some features of both perspectives. Duncan Foley has suggested that unwilling to reduce dividend pllyouts to an ex~t equivalent to the decline in their prof·
it is more appropriate to refer to the 'relative autonomy' of financial institutions in the itability. A study they cite found that in 1927, the profits of large corporations fell by
liquidity creation process rather than the 'endogeneity' of money and credit. His 10 per cent, but retained eamines declined by 50 percent. The corporations then turned
114 Money and Finance Marxian and Posl.Keynuian Developments 115
to the equity market 10 raise the funds necessary to sustain activity amid the profitability Pollin (cds). New Perspectives in Monetary MacroecolWmics: Exploralions
decline. The substantial increase in new equity issues. combined with the high payout in the Tradition o/Hyman P. Minsky, AM Arbor: University of Michigan Press.
rates on equity, in tum contributed 10 the speculative bubble in equity marlcet in the Dumenil. G., Glick, M. and Rangel J. (1987) 'Theories of the Great Depression: .
lale 1920$. Two empirical studies which consider the inlerrelationships between real why did profitability matter?' Review of Radical Political Economics 19(2),
.. nd financial crises in the contc';l of advanced economies other than the US. and
Britain in particular, are Coakley and Harris (1983) and Harris. CoakJey, Croasdale pp. 16-42.
and Evans (1988). Dumtnil, G. and Lc!vy, D. (1989) 'The real and financial determinants of stability:
the law of the tendency toward increasing instability', in W. Semmler (ed.),
Financial Dynamics and Business Cycles, Annonk, NY: M.E. Sharpe.
Dymski, G. (1994) 'Asymmetric infonnation, uncertainty, and financialstructurt.:
REFERENCES "new" versus "post" Keynesian microfoundations·. in G. Dymski and R. Pollin
(eds). New Perspectives in Monetary Macroeconomics: Explorations in the
Aglietta, M. (1979) A Theory of Capitalist Regulation: The U.S. Experience, Tradition of Hyman P. Minsky, AM Arbor: University of Michigan Press.
London: New Left Books. Dymski, G., Epstein, G. and Pollin, R. (eds), (1993) Transfonning the U.S.
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