Minsky on the IS-LM obfuscation

6 September, 2014 at 17:54 | Posted in Economics | 5 Comments

Thirty years ago — as a young research stipendiate in the U.S. — yours truly had the great pleasure and privelege of having Hyman Minsky as teacher. He was a great inspiration at the time. He still is.

The concepts which it is usual to ignore or deemphasize in interpreting Keynes — the cyclical perspective, the relations between investment and finance, and uncertainty, are the keys to an understanding of the full significance of his contribution …

minskys keynesbokThe glib assumption made by Professor Hicks in his exposition of Keynes’s contribution that there is a simple, negatively sloped function, reflecting the productivity of increments to the stock of capital, that relates investment to the interest rate is a caricature of Keynes’s theory of investment … which relates the pace of investment not only to prospective yields but also to ongoing financial behavior …

The conclusion to our argument is that the missing step in the standard Keynesian theory was the explicit consideration of capitalist finance within a cyclical and speculative context. Once captalist finance is introduced and the development of cash flows … during the various states of the economy is explicitly examined, then the full power of the revolutionary insights and the alternative frame of analysis that Keynes developed becomes evident …

The greatness of The General Theory was that Keynes visualized [the imperfections of the monetary-financial system] as systematic rather than accidental or perhaps incidental attributes of capitalism … Only a theory that was explicitly cyclical and overtly financial was capable of being useful …

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5 Comments

  1. Let’s be fair, here. Hicks always believed that his reinterpretation was not what Keynes argued, but rather how a neoclassical economist could interpret Keynes.

  2. in the 1980s in the Journal of Post Keynesian Economics I published an article by John Hicks entitled “IS LM an Explanation”.

    Hicks , after reading my 1980s article on uncertainty and nonergodic economics wrote to me that he should have labeled himself as a nonergodic economist — and wanted to explain why ISLM was not a valid interpretation of Keynes.

    Paul Davidson

  3. […] Lars Syll approvingly quotes Hyman Minsky denouncing IS-LM analysis as an “obfuscation” of Keynes; Brad DeLong disagrees. As you might guess, so do I. […]

  4. […] Lars Syll approvingly quotes Hyman Minsky denouncing IS-LM analysis as an “obfuscation” of Keynes; Brad DeLong disagrees. As you might guess, so do I. […]

  5. […]    “Lars Syll approvingly quotes Hyman Minsky denouncing IS-LM analysis as an “obfuscation” of Keynes; Brad […]


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