Abstract
The 1990s have put the issue of global economic stability under the spotlight. This calls for a re-examination of the economic theory surrounding the subject. Here a three-fold classification is useful. The first grouping locates the source of stability in the workings of the real sector of the economy. A second, following Hyman Minsky, contends that instability arises in the financial sector. A third grouping draws on a distinction by Schumpeter to argue that any effective analysis of stability or instability requires a theoretical framework that integrates both the real and financial sectors at the most basic level. In the light of the current financial crisis which originated in South-East Asia, the second grouping appears most relevant. Part II will give an appraisal of Minsky's theory.
Highlights
The post-war stability of the 1950s and 1960s was widely regarded as evidence of the validity of Keynesian theory and policy
The 1990s have put the issue of global economic stability under the spotlight
A second, following Hyman Minsky, contends that instability arises in the financial sector
Summary
The post-war stability of the 1950s and 1960s was widely regarded as evidence of the validity of Keynesian theory and policy. Minsky sees capitalist economies as endemically unstable The roots of this instability are to be found in the financial, rather than the real, sector. This stability, was not pennanent because in Minsky'S view capitalist economies are endemically unstable What he means by this is that they are inherently liable to both short-run cyclical instability and the constant threat of a 1929-type economic collapse. Investment is not a simple function of the rate of interest It depends on the difference between the demand price and the supply price of capital goods and is related " to prospective yields and to ongoing financial behaviour" (Minsky, 1975: 94). That we have seen what lies behind the demand price and supply price of capital assets, we can turn to analyse the investment decision
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