Regulating the financial system in a Minskyian perspective

Abstract

Hyman Minsky argued that the basic role of the financial system was to support the capital development of the economy. By this he meant more than just the gross accumulation of the capital stock, but rather a broader interpretation of the advancement of the economy. He was clearly influenced by Schumpeter’s ideas as presented in the theory of economic development, although he never adopted the approach of Walrasian equilibrium. Instead he developed an explanation of more or less sustained capitalist expansion interrupted by periodic crises in which the production interdependencies and financing arrangements and conventions would break down, leaving in their place conditions for renewed expansion. In such a system equilibrium would not be maintained by market-based price adjustment, but a new configuration of productive and financial relations would replace the old.