Apr 3, 2013

Minsky and Marx: On Michael Roberts' Take on Minsky's FIH

Some Marxists tend to emphasize a distinction between Marx and Minsky dismissing the latter's theory of financial crisis. But I found, in many cases, this is grounded in a misunderstanding of Minsky, more or less. For example, Michael Roberts' piece on Steve Keen. (I would like to emphasize that the following is about a slight difference of opinion, on the specific issue on Minsky, I have with Michael, whose works I like to read.)

The very essence of Michael's understanding of Minsky seems to be this (if my understanding is correct): In Minsky, boom and bust in the financial sphere depend on the subjective and individual expectations of market participants and are independent of what's going on in the real; i.e. what's going on in the real rather depends on people's expectation. For Minskyians, Michael says, "profits depend on expectations and crises are the result of changed expectations by financial speculators".

I think this is an unfair rendition of Minsky. Even though Minsky himself is not crystal-clear on the related issue, I think interpreting his Financial Instability Hypothesis as a dynamics of the real and the financial interaction makes a lot of sense. Most importantly, profitability (and the resulting cash-flows) of firms is very crucial in the formation and frustration of expectation, which in turn leads to a corresponding fluctuation in the financial variables. In many Minskyian formal models, the future prospect, which affects debt level, is modeled as a function of profits relative to debt service payments.

In this sense, I think Michael's conclusion that "For Marxists, instability in the financial sector would not be enough to cause a major crisis if profitability is rising", also applies to Minskyians. In a sense, Minskyian concept of 'financial instability' cannot be conceived without in relation to profitability. For this concept describes the system's endogenous logic through which it gets financially fragile by overloading debts during good times with favorable profitability and ends up with collapses (or debt deflation) when the euphoric prospects are frustrated by unsatisfactory outcome of profit rate.

In many cases, there is a tendency for those Marxists who put Marx's TRPF and Minsky's FIH in opposition to perceive the financial sphere as secondary and peripheral despite their repeated rhetoric that money and finance are important in Marx's theory. Rather, they seem to be subject to an old dichotomy of the real vs. the financial. For instance, Michael contrasts Minskyians' focus on the financial sphere with Marxists' on the capitalist production process as the origin of the recent crisis.

However, if you understanding that money and finance are essential constituents of the totality of capital in Marx's theory, such contrast would be unnecessary. That is, for Marx, the concept of capitalist production encompasses both production and circulation spheres, and both the real and the financial sectors. And the circulation and the financial could possibly develop their own logic to disrupt the capitalist system; most typical way they do this is to distance themselves from the confines of the value space of the real, generating the systemic 'irrational' fetishism that profits appear to originate from money capital itself  (Marx showed this especially in ch.21, 30, 31, 32 of Capital Vol.3). And this is nothing but an overgrowth of financial sector which is doom to fall down.

If understood in this way, I think a better way for Marxists to appreciate Minskyian FIH is to recognize that Marx already had something similar in Das Kapital 200 years ago or so, rather than to dismiss it as foreign to Marx.

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