ABSTRACT

Financial instability has little prominence within the mainstream presentation of modern macroeconomics. Concerns with the general level of employment, as first expressed by Keynes in the 1930s, have only belatedly given ground to measures that might deliver greater financial stability. A common theme that Hyman Minsky finds in Simons’s ‘Rules versus Authorities’ and in Keynes’s General Theory is that systemic instability is the critical problem for policy. Yet, Simons had been on an entirely different track to Keynes. Consistent with Simons’s rejection of bond-financed fiscal expenditures as a means to sustain aggregate demand, Simons argues that adherence to predetermined rules by a monetary authority would meliorate economic instability. Like Keynes, Simons leaves a crucial element be resolved by others: the ever-present incentive for regulatory arbitrage.