I try not to spend too much time criticizing orthodox economics. I think that heterodox people who spend all their energy pointing out the shortcomings and contradictions of the mainstream are, in a sense, making the same mistake as the ones who spend all their energy trying to make their ideas acceptable to the mainstream. We should focus on building up our positive knowledge of social reality, and let the profession fend for itself.
That said, like almost everyone in the world of heterodoxy I do end up writing a lot, and often obstreperously, about what is wrong with the economics profession. To which you can fairly respond: OK, but where is the alternative economics you're proposing instead?
The honest answer is, it doesn't exist. There are many heterodox economics, including a large contingent of Post Keynesians, but Post Keynesianism is not a coherent alternative research program. [1] Still, there are lots of promising pieces, which might someday be assembled into a coherent program. One of these is labeled "Minsky". [2] Unfortunately, while Minsky is certainly known to a broader audience than most economists associated with heterodoxy, it's mainly only for the financial fragility hypothesis, which I would argue is not central to his contribution.
I recently read a short piece he wrote in 1993, towards the end of his career, that gives an excellent overview of his approach. It's what I'd recommend -- along with the overview of his work by Perry Mehrling that I mentioned in the earlier post, and also the overview by Pollin and Dymski -- as a starting point for anyone interested in his work.…
For me, the fundamental points here are (1) That our overarching vision of capitalist economies needs to be a system of "units" (including firms, governments, etc.) linked by current money payments and commitments to future money payments, not a set of agents exchanging goods; and (2) that the critical influence of liquidity comes in the terms on which long-lived commitments to particular forms of production trade off against current income.
This post is about what "capitalism" actually is based on how it works in a monetary production economy. How it works is the result of addressing key issues that the conventional approach to economics ignores by assuming the neutrality of money. Money is not neutral for very specific reasons that JW suggests need to be explored — and Minsky realized this. In doing so, he suggested how to set economics on a fresh course based on tried and trusty principle, Follow the money.
From the POV of following the money, money and banking, and finance are essential components of the study of economics, and accounting is as important or more so than econometric modeling. This being the case, law and government are also heavily involved in understanding the construction of economics systems based on the wider social and political context.
Probably the most important takeaway from JW's recent posts is his focus on the need to be asking the right questions in order to arrive at the right answers. The first step in design and engineering is figuring out what the problem actually is. Instead, economists have tended to assume that the purpose of economics is to provide explanations. The problem here is that events can have many explanations. But when dealing with a system that has variable effects depending on the construction of the system and the variable inputs, the question is about how the system works to do what it is capable of doing.
The conventional view of economists about their subject is similar to theoretical physics, whose object is "pure science," which consists mostly in constructing mathematical models. Evaluating those models based on outcome is left to experimental physicists, and then the result are passed along to applied physicists, who are called engineers. Conventional economics has tended to emphasize the theoretical, ignore the experimental, and leave the applied to a separate discipline, management science, that doesn't rely on very much on economic theory.
As Thomas Aquinas observed at the outset of
De ente et essentia, paraphrasing Aristotele, "A small mistake at the beginning becomes a great one by the end.
The Slack Wire
Minsky on the Non-Neutrality of Money
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York
