Veblenian and Minskian financial markets

Abstract

The purpose of this paper is to provide an exposition of Veblen's and Minsky's views on the financial markets and to explore the possibility of any common denominators. I stress that they both bring forward the importance of leverage as a path-breaking insight, as well as of liquidity and solvency in the real-world financial markets characterized by uncertainty, innovations and evolving institutions. I remark that Veblenian and Minskian financial markets are naturally and endogenously unstable, nonneutral and influence 'real' economic performance. I argue that if Veblen's institutional logic in his business enterprise system became integrated with Minsky's financial processes of creation and destruction, it could set up a realistic framework to analyse the evolution of financial markets in capitalism.

Have we been here before? Phases of financialization within the twentieth century in the US

“…In particular, we follow the notion provided by the two most distinguished authors of the Old Institutionalist School, namely Veblen (1904) and Minsky (1986), who both highlighted the inner tendency of the macrofinancial system towards financial fragility, due to the imposition of increasing leverage, which renders the economic system prone to financial collapse (Argitis 2013).…”

Minsky’s financial instability hypothesis

“…Otherwise, their interventions might validate financial innovations that destabilise the financial system (see Argitis, 2013Argitis, , 2017Kregel, 2014a). Minsky was always in favour of a 'macroprudential' approach to financial regulation, according to which the interactions between the macrofinancial system and individual financial institutions are analysed as a whole.…”