ABSTRACT
This chapter explores some of the causes and consequences of the debt crisis in the Third World. It discusses a structural analysis of the crisis and argues that it was a consequence of the financial system’s tendency to produce instability in capitalist economies. The chapter proposes Hyman P. Minsky’s hypothesis regarding the role of the financial system in promoting economic instability. It examines some of the factors injecting instability in the world market. These factors make it increasingly difficult for individual nation-states to influence capital flows on an international level. Minsky’s analysis of debt crises is an improvement over most neoclassical and Keynesian analyses of credit because it adds a dynamic element to market processes. A prevalent explanation for the Third World debt crisis is that the oil crisis of the early 1970s increased the debt of the developing countries. Debt crises are symptomatic of contradictory nature of capitalist credit. Access to credit is critical for nation-states that are developing.
