Why Minsky Matters: An Introduction to the Work of a Maverick Economist by Randall Wray

The world of economics is full of big names and deep concepts, but none are more important than the late Marvin Minsky. He was one of the most influential figures in the field, particularly when it comes to his groundbreaking theories on the nature of economic instability. His work, still studied to this day, offers insights into some of the most enduring puzzles of economics.

Marvin Minsky was a polymath and exceptionally accomplished scientist, but his impact on economics was unlike any other. His contribution to the understanding of economic instability has been profound and is the subject of intense contemporary scholarship. It is for this reason that Minsky’s theories and philosophy should be given further consideration and explored in greater detail. Doing so will likely provide readers with an important introduction to the exciting field of economics.

So why does Minsky Matter? It all has to do with his groundbreaking “theory of financial instability.” This theory, which has come to be known as the ‘Minsky Moment,’ argues that financial markets, within any given economy, experience a continual cycle of 'stability-instability'. This means that after a period of economic growth, a market can become increasingly prone to crash.

Minsky’s work was heavily influenced by his observations of the economic history. He put forth a number of ideas that challenge the traditional understanding of economic stability and its relationship to investment and borrowing. In contrast to the theories of classic economists such as Keynes, Minsky argued that economic stability was not just a natural consequence of investment and borrowing but instead, was the result of government policy.

The history of economic thinking is littered with ideas as to how a stable economy might be achieved. Minsky claimed that these various approaches had a common element – they all relied heavily on the assumption of trust within the financial system. The problem, however, was that this trust was illusionary, as banks and investors didn't always keep their commitments, resulting in increasing levels of instability and volatility.

Minsky’s overarching thesis, then, is that subsequent attempts to stabilize economies fail because of the lack of trust at the heart of the financial system. Without this trust, investors and banks seek out higher rates of return in order to compensate for their risk, ultimately leading to more instability and volatility.

Minsky’s contribution to economics was more than just a new theory. He also offered suggestions on how to deal with economic instability. Most prominently, Minsky proposed a system of ‘countercyclical’ regulation, which he believed would create incentives for economic entities to avoid taking on risk when the economy was in a weakening stage. This, he argued, would help to maintain stability in the economic system.

Since the 2008 financial crash, Minsky’s ideas have experienced a resurgence, with many countries adopting some of his proposed reforms as a means to try and reduce the risk of another global economic crisis. This is a testament to the power of his ideas and their ongoing relevance.

Minsky’s theories and ideas remain hugely influential and provide important insights into some of the enduring mysteries of economics. His work, “Why Minsky Matters” continues to be required reading for students and professionals alike. By exploring the work of this maverick economist, readers can gain a deep and wide understanding of the interrelated theories that underpin the field of economics.