Posted by: Dirk | January 3, 2019

Minsky in 1993 on the Non-Neutrality of Money

I have read an article from Hyman Minsky which is only 6 pages long but contains some major arguments of his thought. There are also some very nice quotes to take out of the text. The article was published in the FRBNY Quarterly Review issue of spring 1992 on pages 77-82. Minsky attacks equilibrium economics:

The essential problem is whether any macroeconomic theory that is constructed upon a set of assumptions from which the proposition that money and finance are neutral is derived can be a serious guide to understanding our economy and to the development of policies for our economy.

This, by now, is common knowledge. Macroeconomics has failed, and only entrenched interests and the unwillingness to change when confronted with new empirical evidence that should lead to paradigm change is what is blocking the path of Minskian economics. Minsky writes:

The conventional economic paradigm is not the only way economics interrelations can be modeled. Every capitalist economy can be described in terms of sets of interrelated balance sheets. Except for two sets of entries – those that allocate the real capital assets of the economy to particular balance sheets (of firms) and those that allocate the net worth of the economy to other particular balance sheets (of households) – every asset is a liability in another balance sheet and every liability is an asset in other balance sheets. Balance sheets balance.

This is essential Minsky. For me, this approach is the only way to go forward. Either you are dealing with with assets and liabilities and trying to make sense of the macroeconomy or you are abstract and non-realistic, prone to repeat the mistakes of the past. As Minsky writes:

Balance sheet relations link yesterdays, todays, and tomorrows;

Again, this is fundamental. The economy is structured by legal constructs that potentially trigger cash flows, and these contracts were made mostly in the past, some in the present, and extend into the future. Minsky is lead to a very important question:

For economics the appropriate questions is, How do rational individuals behave in an irrational world, that is, a world they do not fully understand?

The center of analysis is the money-making process:

The fundamental borrowing and lending act in this system is an exchange of “money” now for “money” in the future.

He then foresees what Richard Koo has called the yin and yang phases of the economy:

We also need to be able to swing from periods in which the private economy dominates in the determination of gross profits and periods in which public debt-financed spending takes over the burden of sustaining gross profits.

This is brilliant. There is more in this short article, so I urge readers interested in a short introduction to Hyman Minsky to read this six-page article.



  1. The paper can be downloaded at

  2. Is this the link you are looking for?

  3. Neither of these links worked for me.

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