Hyman Minsky and the Dilemmas of Contemporary Economic Method

Minsky’s influential work on financial fragility grows out of a recognition of the pivotal role financial markets and institutions play in converting liquid general claims to undifferentiated output into illiquid, risky, long-lived investment projects. This process requires savers, investors and intermediaries to value the prospective profit of particular investments in historically unique circumstances. Contemporary economic methodology, on the other hand, sees statistically repeatable observed events as the operational equivalents of the abstract variables of mathematical models of economic behavior. The attempts of Minsky and his followers to express his vision in the language of mathematical and econometric modeling founder on the incompatibility of these two points of view. The inescapable relevance of Minsky’s ideas to the understanding of world political economic developments challenges us to expand received notions of scientific method applied to economics and economic data.