* * *
Minsky as economist
Minsky’s training – Chicago BS in mathematics (1941), Harvard PhD in economics (1954) – started him off with the makings of a disciplinary insider. After teaching at Brown while still a graduate student, he accepted a faculty position at Berkeley in 1958. His education and early publications in academic journals of high prestige among economists (1957a; 1957b; 1959a; 1961) might have set him on the path to prominence. But he left Berkeley for Washington University in St Louis, and his subsequent publications are in more marginal academic journals and in the non-academic press. Minsky never withdrew his claim on economics, however; instead he resolutely and repeatedly sited himself at its margins.
This must be in part because Minsky’s treatment of themes central to his work is in conflict with those of the discipline. The issues of time and uncertainty created serious problems for economists, he thought, and the mechanisms of finance suggested a way to study them. “Economics is a strange discipline in which present, past, and future coexist in time. A cash-flow approach to economic theory helps unravel some of the problems associated with time” (1982d, 19; also 1993b). Minsky’s objection echoes that of G. L. S. Shackle: “To look down the complete vista of all relevant history-to-come is to see a still picture where nothing happens. In such a world … there would be no need for postponement of choice, no need for liquidity” (Shackle 1972, 165). For Shackle as for Minsky, economics offers no adequate understanding of time, and therefore no adequate understanding of instability.
Minsky did try to persuade. His dissertation (1954) can be understood as a way to add financial mechanics to standard economic models. His first book (1975c) adds very much the same financial mechanics to the analysis of Keynes’s The General Theory of Employment, Interest and Money (1936). Minsky’s second book (1986e) studies them in the context of the experience of the 1970s. Indeed, what is most striking about Minsky’s relationship to the economics profession is the consistency of his stance despite the changing fashions of academic economics.
In this it seems helpful to regard the economics profession as a community united by a language. Economics has its lexicon of technical terms – or everyday terms with technical meanings – but also a vocabulary of mathematical models and statistical approaches. Together, these comprise the language of instruction in most economics undergraduate and especially PhD programs. Minsky certainly mastered the language to the satisfaction of the Harvard economics department, but later reflection, without regret, suggests that he still felt a language barrier, having “never really [become] strongly bound to [his] contemporaries in economics” (1985b, 213).
The resulting communication difficulties were clearly frustrating. Reviews of work by more mainstream authors open with complaints: “The combination of a critical attitude towards Arrow–Debreu and a positive view of Keynes led this reader to expect that an effort to develop an ‘alternative construction’ would follow… Alas, my high hopes were not validated” (1984c, 450; also 1981c). The reviews that follow are embedded in what are clearly rehearsals of Minsky’s own views; it is not hard to see how these jabs could be ignored by their targets.
Fellow dissidents received much the same treatment: Minsky’s review of Davidson’s Money and the Real World suggests that the author “should go back to the drawing board and produce a more succinct and a better focused presentation of the important things he has to say” (1974b, 17), and the review makes clear that the ideal model for such a presentation would be Minsky’s own. Writing of Leijonhufvud’s Information and Coordination, similarly, Minsky says that it “works to the literature, not to institutions and their evolution. This was valuable when criticising established doctrine was the task; it is a serious flaw when the task is the building of viable theory” (1982e, 977).
Minsky’s objections extend to the methodologies that sustain the language of economists. He dismissed as irrelevant to practical concerns highly mathematical theoretical and statistical models: “Economic policy is not made for a mathematical or statistical abstraction” (1977g, 3; also 1969c; 1980d). Statistical analyses were “printouts”: “As the doubters of permanent prosperity did not have printouts to prove the validity of their views, it was quite proper to ignore the arguments drawn from theory, history, and institutional analysis” (1977b, 146). Such modeling efforts were not just idle; the standards of mainstream economics meant that other valuable perspectives – principally, again, Minsky’s own – were ignored. Evidently the failure to communicate was a sore point; evidently Minsky’s tone did little to win converts to his perspective among his colleagues.
This book seeks to understand Minsky’s work; the opinions of the mainstream of the economics profession are well documented elsewhere, as are those of its heterodox critics. I have therefore limited myself, in what follows, to the critical aspect of the relationship between Minsky and the economics profession: what are the points on which communication failed, and why? Minsky returned time and again to the same set of ideas about finance and capitalism, trying to articulate them to other economists, but economics did not really have the vocabulary to accommodate those ideas. As Shackle observed, “Money, as something which can introduce a time-interval between selling one thing and deciding what to have in exchange for it, can evidently have no place in a system whose logic requires all its choices to be comprehensively simultaneous in order that they may be pre-reconciled and thus fully informed” (Shackle 1972, 164).
The real barrier to communication, I propose, was that the themes Minsky dealt with – uncertainty, liquidity, money – find no easy expression in the language of economics as it currently is; the very words had different meanings to his colleagues. The more one is socialized into the discipline, the harder it becomes to talk about these ideas. I return to these translation difficulties later, especially in chapters 4 and 7.
* * *
Minsky’s intellectual vision and appetite for the grand challenges of the theory of business cycles made Schumpeter a natural mentor. The author of a thousand-page book on business cycles illustrated by example a way of knowing, a way of being a scholar and an economist, that Minsky admired and sought to emulate. But Schumpeter’s approach was out of sync with the priorities of the post-World War II generation of graduate students. The ambition that Minsky shared with Schumpeter was the exception among his cohort of PhD students:
[I]n the Harvard of 1946–49, the graduate students, largely but not exclusively veterans of either the service or of Washington, did not take Schumpeter seriously. This was not because the students were in the forefront of the emerging mathematical economics and therefore had surpassed Schumpeter. It was because the main thrust in economics at Harvard was applied: the simplified Keynesian economics of Prof. Alvin Hansen and the quite mechanical application of monopolistic competition theory to problems of industrial organization as set out by Prof. Edward Mason ruled the roost. The representative student was not intellectually engaged with the big issues of the scope and nature of economics and the lessons for a vision of society that were to be extracted from the dismal history of the previous two decades. The prevailing ethos was careerist. The working postulate among the graduate students was not only that big thinking was in the past, but, in truth, it was not worth doing. Their task was to get the Ph.D. and go forth to teach or to serve a government bureau. In the prevailing view, economics was now a normal science, not a grand adventure, and therefore Schumpeter was irrelevant. (1992b, 363 n.