ABSTRACT
The current financial turmoil has brought the thought and the writings of Hyman Minsky into the limelight, and reflection on his contribution becomes more topical than ever. This chapter focuses on how Minsky’s work relates to Keynes. Minsky proposed his ‘financial instability hypothesis’ as an authentic interpretation of The General Theory, so it is not by chance that he is generally seen as a leading post-Keynesian economist. A careful reading of their work nevertheless brings out subtle but crucial differences. Our comparison refers to H.R. Hudson’s representation of the trade cycle (Hudson 1957).1 On the basis of the interaction between the money market and the goods market, this representation envisages a succession of phases of excess investment and of excess saving, with a simple and plausible transition mechanism from one to the other. Hudson’s representation serves as our litmus paper. When ‘dipped’ in the writings of Minsky and of Keynes, it will reveal important analogies and – above all – some crucial differences. This chapter is organized as follows. The next three sections set out Minsky’s own thought. Specifically, the second and third sections will focus on the two main pillars of Minsky’s view, namely the ‘financial theory of investment’ and cumulative processes. The fourth section then presents Minsky’s ‘financial instability hypothesis’. The fifth and sixth sections introduce Hudson’s litmus paper and ‘dip’ it into the writings of the two authors, focusing respectively on the analogies and on the differences. Lastly, the final section strikes a concluding balance.
