Minsky's Contribution to the Current Macro Debate
DAN MONACO writes in The Straddle HERE
“A Moment among the Minskians” from (Michael Stephens, November 16, in Economic Policy, Levy Institute”:
[Read more on Minsky as a ‘post-Keynesian’ economist HERE
and HERE
“Dan Monaco, writing for The Straddler, attended this year’s Minsky Summer Seminar at the Levy Institute and put together an engrossing (and accessible) article that looks at the work of Hyman Minsky, paying particular attention to Minsky’s interpretation of Keynes (including his views about the misinterpretation of Keynes by mainstream economics). The article is sprinkled with excerpts from Monaco’s interview of Dimitri Papadimitriou:
“Economists have lost their credibility because they do not actually deal with the real world,” Dimitri Papadimitriou, President of the Levy Institute, told me in my conversation with him. …
“Minsky was in some ways a pioneer. He saw that economic theory assumed that everything is known and that there is some tendency of the system to reach for equilibrium and, at times, to reach periods of ‘tranquility,’ as he preferred to call them. Of course, he never believed that stability was possible. He didn’t believe in the invisible hand. There’s a reason why it’s invisible—because it’s not there.”
Comment
I strongly recommend that you follow all the links and spend ten to fifteen minutes at least judging for yourself the merits of what Minsky was arguing for his interpretation of Keynes’ General Theory in the context of post-war capitalism in the USA (he died in 1996), especially in the light of the current recession and financial/banking crisis, plus the chronic indebtedness of all European and American governments.
His approach to the modern theory of the “invisible hand” falsely attributed to Adam Smith, who was wholly innocent and never had a theory of the IH metaphor, Hyman P. Minsky reads the situation correctly. The IH doesn’t exist, (though he doesn’t directly nail the IH myth at the door of neoclassical economics), it is a fiction invented by (too?) clever neoclassical theorists in search of a respected figure head to give a gloss of historical authority to a convenient crowning of their undoubted mathematical achievements in proving the existence of general mathematical equilibrium in an imaginary world and, in passing, making, the Class A error of confusing their proofs with what happens in the real world with what happens in the mathematics of an imaginary world.
Whimpers that the ‘Emperor is Naked’ were (still are) drowned out in the loud exclamations of ‘genius’, ‘brilliant’, worthy of Nobel Prizes, and such-like praise for the simple reason that what was achieved was truly of that class. Economics is so divided politically and institutionally by the current standards of academe that young economists who challenge the creaking consensus risk their careers and access to publishing in the ‘leading’ journals, and as bad, risk their reputation among their peers, who conform and who slavishly demonstrate their conformity.
Johan Van Overtreldt’s history of the Chicago School provides a succinct summary of the worldview underlying neoclassical theory:
“The basic assumption of neoclassical economic theory is the proposition that in a competitive market environment, individuals and corporations pursuing their own self-interests necessarily promote the best interests of society as a whole.
Thus, neoclassical economics, whatever its modifications or adjustments, is always in essence a cry for “pure” capitalism, while Keynesianism, whatever its color, is always at heart a proffered solution (more or less “radical,” depending upon one’s interpretation) to the problems of capitalism from within capitalism.”
There’s more, much more, worthy of your time in the links. Some parts may appear more useful to economists, but most will appeal to general readers too.
“A Moment among the Minskians” from (Michael Stephens, November 16, in Economic Policy, Levy Institute”:
[Read more on Minsky as a ‘post-Keynesian’ economist HERE
and HERE
“Dan Monaco, writing for The Straddler, attended this year’s Minsky Summer Seminar at the Levy Institute and put together an engrossing (and accessible) article that looks at the work of Hyman Minsky, paying particular attention to Minsky’s interpretation of Keynes (including his views about the misinterpretation of Keynes by mainstream economics). The article is sprinkled with excerpts from Monaco’s interview of Dimitri Papadimitriou:
“Economists have lost their credibility because they do not actually deal with the real world,” Dimitri Papadimitriou, President of the Levy Institute, told me in my conversation with him. …
“Minsky was in some ways a pioneer. He saw that economic theory assumed that everything is known and that there is some tendency of the system to reach for equilibrium and, at times, to reach periods of ‘tranquility,’ as he preferred to call them. Of course, he never believed that stability was possible. He didn’t believe in the invisible hand. There’s a reason why it’s invisible—because it’s not there.”
Comment
I strongly recommend that you follow all the links and spend ten to fifteen minutes at least judging for yourself the merits of what Minsky was arguing for his interpretation of Keynes’ General Theory in the context of post-war capitalism in the USA (he died in 1996), especially in the light of the current recession and financial/banking crisis, plus the chronic indebtedness of all European and American governments.
His approach to the modern theory of the “invisible hand” falsely attributed to Adam Smith, who was wholly innocent and never had a theory of the IH metaphor, Hyman P. Minsky reads the situation correctly. The IH doesn’t exist, (though he doesn’t directly nail the IH myth at the door of neoclassical economics), it is a fiction invented by (too?) clever neoclassical theorists in search of a respected figure head to give a gloss of historical authority to a convenient crowning of their undoubted mathematical achievements in proving the existence of general mathematical equilibrium in an imaginary world and, in passing, making, the Class A error of confusing their proofs with what happens in the real world with what happens in the mathematics of an imaginary world.
Whimpers that the ‘Emperor is Naked’ were (still are) drowned out in the loud exclamations of ‘genius’, ‘brilliant’, worthy of Nobel Prizes, and such-like praise for the simple reason that what was achieved was truly of that class. Economics is so divided politically and institutionally by the current standards of academe that young economists who challenge the creaking consensus risk their careers and access to publishing in the ‘leading’ journals, and as bad, risk their reputation among their peers, who conform and who slavishly demonstrate their conformity.
Johan Van Overtreldt’s history of the Chicago School provides a succinct summary of the worldview underlying neoclassical theory:
“The basic assumption of neoclassical economic theory is the proposition that in a competitive market environment, individuals and corporations pursuing their own self-interests necessarily promote the best interests of society as a whole.
Thus, neoclassical economics, whatever its modifications or adjustments, is always in essence a cry for “pure” capitalism, while Keynesianism, whatever its color, is always at heart a proffered solution (more or less “radical,” depending upon one’s interpretation) to the problems of capitalism from within capitalism.”
There’s more, much more, worthy of your time in the links. Some parts may appear more useful to economists, but most will appeal to general readers too.
Labels: Invisible Hand, Keynes, Minsky, Neoclassical economics
7 Comments:
Well, I think the invisible hand is more than just a metaphor and does exist. It is real. We call it invisible not because it doesn't exist but because we can't quite pin down the phenomenon around us that it tries to describe.
Smith used this metaphor to describe a human instinct. It made me think of another metaphor, this one invented by Schumpeter, "creative destruction". That one encompasses two basic human instincts, humankind's dual instincts to create and destroy. The instinct the invisible hand describes is not so clear.
Perhaps Smith's invisible hand understood this duel instinct. Whatever one things, the invisible hand is deeply associated with capitalism. "Creative destruction" is very much capitalism. Perhaps, then, the invisible hand is the act that transpires between or is the outcome of the instincts of creating and destroying.
airth
You seem to have a views as to what a metaphor is and I think we could take your discussion further if you were to elucidate what role you think a a metaphor plays on English literature.
Gavin
Gavin,
I detect that you are not happy with my animating metaphors, giving them literal value.
I believe Wittgenstein was of the same mind, not giving metaphors more than they deserve and that they shouldn't be taken literarily.
airth
Anybody may use a metaphor in any manner that they choose - creating a sentence is a free action - but I find it uneasy when someone states what someone else meant by a particular metaphor that they used in a clear and specific context when that person's use of the metaphor conforms to clearly stated roles, which that person identified in his text and to which rules of grammar he clearly stated in his Lectures on Rhetoric (1763).
Metaphors, as used by Adam Smith, and by others teaching English language, do not exist outside the object to which they metaphorically describe. It follows that there is no actual 'invisible hand' in Adam Smith's usage. It does not describe itself. It is not a noun; it "gives the due strength of expression to the object to be described in a more striking and interesting manner", wrote Adam Smith.
You write that in Adam Smith's use the IH metaphor
"we can't quite pin down the phenomenon around us that it tries to describe" and you then give 4 or 5 possible meanings that you have imagined/invented.
You may invent any meaning that you like but you cannot legitimately ascribe these inventions to Adam Smith's usage. And that's the problem with many modern economists (since Samuelson, and others); they do not understood or conveniently forget, elementary English literature and grammar. Smith did - he taught Rhetoric for 15 years - and modern economists ascribe invented meanings which action is illegitimate among scholars and those who understand which object he described using the IH metaphor in Moral Sentiments and Wealth of Nations.
Gavin
Well, I don't know exactly what to say. But I thank Smith for giving us the IH metaphor which has taken on a live of its own.
Humanity has always taken ideas and twisted them, built on them and even made them unrecognizable.
For some God is a metaphor. For others He is reality.
airth
People use well-known metaphors, many become cliches from over use and are usually associated with poor writing skills.
That is not what I am talking about. When somebody takes a well-known metaphor, such as the IH metaphor, associate it with Adam Smith by name, and attribute new meanings to it in his name, they are doing something worse that 'poor' writing, they are falsifying that association of their invention with Adam Smith, usually to give credence to some false claims about the alleged association, which, scholastically, is poor history and factually wrong.
Lost Legacy objects to that behaviour.
'Humanity has always taken ideas and twisted them, built on them and even made them unrecognizable.'
True, but wrongful association in the name of a person who did not commit such errors remains an unacceptable practice.
Gavin
I understand that Smith had many of his papers destroyed after his death. Perhaps those papers revealed more usage of the IH, revealing that Smith meant it more than a metaphor.
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