Hyman Minsky (1919-1996) was an American economist famous for his theory of financial instability. He showed how periods of stability and growth push players to take on increasing risks, leading to financial crises.
Hyman Minsky(1919 — 1996)
Hyman Minsky
États-Unis
6 min read
Frequently asked questions
Famous Quotes
« Stability is destabilizing.»
Key Facts
- Born in 1919 in Chicago into a family of Jewish immigrants of Belarusian and Lithuanian origin
- From the 1970s onward, develops his financial instability hypothesis
- Distinguishes three types of financing: hedge, speculative, and Ponzi
- Dies in 1996; his theories see a major resurgence of interest during the financial crisis of 2008 (the “Minsky moment”)
Works & Achievements
An original rereading of Keynes's work emphasizing the role of finance and uncertainty, long neglected by orthodox “Keynesian” economists.
A collection of essays asking whether a new Great Depression could occur and laying out the mechanisms of financial fragility.
A major synthesizing work, presenting the financial instability hypothesis and arguing for a stabilizing role for the state and the central bank.
A concise and famous exposition of his central theory, which became a key reference after the 2008 crisis.
A classification describing how borrowers gradually shift from caution to over-indebtedness, making the financial system increasingly fragile.
The key idea that long periods of economic calm encourage risk-taking and set the stage for future crises.
Anecdotes
For most of his career, Hyman Minsky was a marginal economist, rarely cited by his peers, who preferred equilibrium models. It was only after his death, during the financial crisis of 2008, that his ideas met with spectacular success and his out-of-print books were suddenly snapped up.
At Harvard University, Minsky's thesis advisor was Joseph Schumpeter, the Austrian economist famous for his theory of “creative destruction.” When Schumpeter died in 1950, the future Nobel laureate Wassily Leontief took over the supervision of his work.
His most famous formula comes down to three words: “stability is destabilizing.” According to him, the longer an economy enjoys a calm and prosperous period, the more banks and investors forget the danger and borrow recklessly, unwittingly setting the stage for the next crisis.
In 2008, journalists and economists began speaking of a “Minsky moment” to describe the instant when a speculative bubble bursts abruptly. The expression had in fact been coined back in 1998 by fund manager Paul McCulley, in reference to the Russian financial crisis.
Minsky distinguished three types of borrowers with colorful names: “hedge” financing (prudent), “speculative” financing, and “Ponzi” financing — named after the swindler Charles Ponzi — in which the borrower must constantly re-borrow to repay, until the whole thing collapses.
Primary Sources
Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.
The financial instability hypothesis is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated.
The essential aspect of Keynes's General Theory is a deep analysis of how financial forces — which we can characterize as Wall Street — interact with production and consumption to determine output, employment, and prices.
The natural starting place for analyzing the relation between debt and income is to take an economy with a cyclical past, and to note that the financial system is robust or fragile depending upon how recent that past is.
Key Places
Hyman Minsky's birthplace, in 1919. He grew up there and earned his bachelor's degree in mathematics at the University of Chicago.
Minsky defended his doctoral dissertation in economics here in 1954, under the supervision of Joseph Schumpeter and later Wassily Leontief.
Minsky taught economics here and deepened his research on finance and economic cycles.
This is where Minsky taught for the longest part of his career, from 1965 until his retirement, and where he developed his financial instability hypothesis.
Minsky was a distinguished scholar here from 1990 onward; the institute carries on his thinking to this day.
A town in the Hudson Valley where Hyman Minsky died in 1996.
Typical Objects
On this board, Minsky drew for his students the diagrams linking debt, profits, and investment. It was the central tool of economics teaching in his era, before computers.
Minsky wrote his articles and books on a typewriter, like all 20th-century academics before the personal computer. Each correction meant retyping the whole page.
A calculating instrument used by mathematicians and economists before the electronic calculator. Minsky, a mathematics graduate, used it for his numerical estimates.
Minsky's articles appeared in scholarly journals circulated among universities. Long ignored, they became key references after 2008.
At the heart of his theory, the balance sheet of a bank or company shows the fragile equilibrium between debts and assets. Minsky made it the central object of his analysis of crises.
Like many academics of his generation, Minsky was often portrayed with a pipe in hand, an emblematic accessory of the 20th-century intellectual.
School Curriculum
Vocabulary & Tags
Key Vocabulary
Tags
Daily Life
Morning
As an academic, Minsky began his day by reading the economic and financial press, keeping a close eye on the markets and interest rates. He would then prepare his lectures and articles in his office.
Afternoon
His afternoons were divided between the lectures he gave to his students, research seminars, and discussions with his colleagues. He also devoted time to writing his books and articles.
Evening
In the evening, Minsky continued his reading and reflection, gladly exchanging ideas with bankers and finance practitioners whose hands-on experience he valued, far removed from purely theoretical models.
Food
His diet was that of a middle-class American academic of the twentieth century: meals eaten on campus or at the university dining hall, family dinners, with nothing especially noteworthy.
Clothing
Minsky wore the classic suit and tie of the American university professor, sometimes the tweed jacket, the customary attire of the academic world of his time.
Housing
He lived in comfortable houses in residential neighborhoods near the universities where he taught, notably in St. Louis during the longest part of his career.
Historical Timeline
Period Vocabulary
Liens externes & ressources
Références
Œuvres
John Maynard Keynes
1975
Can "It" Happen Again? Essays on Instability and Finance
1982
Stabilizing an Unstable Economy
1986
The Financial Instability Hypothesis (article)
1992
Théorie des trois régimes de financement (hedge, spéculatif, Ponzi)
années 1970-1980
Formule "la stabilité est déstabilisante"
années 1970
