Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Minsky's Inescapably Institutional Economics


Published on

Slides from the 2016 PK Conference

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Minsky's Inescapably Institutional Economics

  1. 1. Hyman P. Minsky’s Inescapably Institutional Economics and some Future GIS Applications of Macro-dynamic Minsky Models Stefanie Cole University of Missouri Kansas City PK Conference 2016
  2. 2. Institutional Roots: The Chicago Environment “there was indeed a clash in style and in ethos between the College and the graduate divisions. The style of established scholars and researchers tends to be disciplinary, and thus generally conservative of principles and methods by which their fields are founded. The style of the College tended to be dialectical in the extreme, and therefore radically challenging toward all claims to knowledge. The ethos of the graduate faculty was dominated, as it had always been, by the University Spirit, with its high opinion of the value of specialized inquiry and research. The ethos of the College, during the period 1942 – 1953, was dominated by a synthesis of the Liberal Arts Spirit that Hutchins and others had brought to Chicago, and the progressive- pragmatic spirit that Dewey had left here.” (Orlinsky in MacAloon 1992 p. 64-65). “…friendships across fields of study were the normal result. While at Chicago I became close to the neurologist Jerome Lettvin and the mathematician Walter Pitts… We shared living quarters along with Oliver Selfridge who works in artificial intelligence. In both my undergraduate and graduate days – in Chicago and at Harvard – I never really became strongly bound to my contemporaries studying economics” (MInksy in Kregel 1989 p. 171).
  3. 3. Institutional Roots: Chicago for Minsky “Under the leadership of its president, Robert Maynard Hutchins, the University of Chicago in 1937-42, the five academic years I spent there, was a special place. The commitment to learning and discourse, especially in the humanities and the social disciplines, was honest. There was relatively little of the intellectual posturing that now characterizes much of economics; subsidized research and consultancies were rare. Furthermore, although the main commitment by faculty and students was to their discipline or prospective discipline, the University’s organization and curriculum supported cross discipline interactions.” (Minsky in Kregel 1989 p. 170-171) “Economics was quite properly part of a social science sequence. As I think about introducing students to economics, the Chicago program, where economics was first introduced to students as part of the study of society, where economic history, political science, sociology, anthropology and economics were part of an integrated sequence aimed at understanding modern society, is vastly superior to the usual practice of teaching economics in isolation in a specialized course” (Minsky in Kregel 1989 p. 172)
  4. 4. Institutional Roots: The First Giants • “Simons read this personal statement about his political, social and economic philosophy before the class got down to work. The idea was that the students had a right to know the PRIORS of the teacher. In 1939 to 1942 it was to be expected that a significant portion of the students in economics would be in some vague sense a socialist. Although the ASU and the YCL were strong among the students and there were several fellow traveling professors on campus the major socialist influence on the economics faculty undoubtedly was Oscar Lange followed by Maynard Krueger and Gerhard Mayer (who was a major influence on me as I became a graduate student).”(Minsky 1990 p. 2) • “Today, economics at the University of Chicago is associated with a special methodological, ideological, and doctrinal position. It was not true of economics at Chicago during the years I was there. The department had room for radicals like Lange, liberals like Douglas, middle-of-the-roaders like Viner, as well as the beginnings of a conservative group in Knight, Simons, and Mints. Furthermore even those who were most clearly the intellectual ancestors of the present Chicago school-Frank Knight and Henry Simons-were not, at least in the understanding of this young student, as rigid and ideologically hard as today’s ‘Chicago types’... Economics at Chicago in the late 1930s and early 1940s was open, rigorous and serious. Any department which ran the spectrum from Knight to Lange had to be intellectually open.” (Minsky in Kregel 1989 p. 170).
  5. 5. Institutional Training at War • His work in the war was performed under David Saposs, a labor economist whose intellectual roots Minsky traced to John R. Commons. “The experience in Germany-and the interactions with Saposs impressed upon me the importance of the specific institutions and historical circumstances upon what happens in the world. From that time on I think I understood that theoretical abstractions are necessary to focus thinking-but abstract theory is the beginning of serious economic analysis, not the end product.”(Minsky in Kregel 1989 p. 169-170)
  6. 6. Minsky Matures: Legacy Mapping • Minsky includes Joan Robinson’s Economics Heresies in lists of recommended reading. “A model that is intended to be relevant to some actual problem must take account of the mode of operation of the economy to which it refers. ’Pure theorists’ sometimes take a supercilious attitude to “structuralists” or “institutionalists.” They prefer a theory that is so pure as to be uncontaminated with any material content. Was Keynes and institutionalist? He took into account the institutions of a nation-state, the organization of industry, the banking system and the Stock Exchange as he saw them.” –Joan Robinson in Economic Heresies p. 142
  7. 7. Minsky Matures: Reconciling the Giants • During his award speech upon winning the 1996 Veblen- Commons Award, Minsky himself tracked down and emphasized Keynes own connection to the American Institutional economists and his later research program included expositions of the relationship between Keynes and Schumpeter and Institutional Thought. “This praise of Mitchell, the identification of Mitchell with Keynes’s view on profits and the endogeneity of business cycles, and Schumpeter’s endorsement of these views, lead me to wonder if Schumpeter died a closet believer in the what we can call the economics of Keynes, even though he would not associate himself with the Harvard Keynesian economics of his time.” (Minsky 1992 p. 105).
  8. 8. The First Financial Keynesian appears on Heterodox evolutionary tree. Minsky included the work of Lange and Simons in his analysis. Insights from Schumpeter and Mitchell are also incorporated into his complex intellectual tapestry. Minsky wrote that, for Schumpeter, “normal science was too easy”; students needed to develop their own way of doing economics (1992 p. 104). “No doctrine, no vision that reduces economics to the study of equilibrium seeking and sustaining systems can have a long-lasting relevance. The message of Schumpeter is that history does not lead to an end of history” (Minsky 1992 p. 104).
  9. 9. Minsky Models • Minsky’s macro modeling work included a theoretical integration of relationship between what he considered important ‘truths’ of modern capitalist economic systems. • Financial Keynesian economics was conceived within the context of dynamic economic and historical processes of wealth distribution and wealth creation under complex and evolving capitalism where production decisions are ubiquitously dominated by the interplay between bankers and investors. • Potential circuits for innovation (uncertainty) exist at every level of social, legal, and individual vantage. Analyzing the economy we live in requires analytical tools and material resources adequate to the job.
  10. 10. Minsky Models: Recipes • .But when Minsky’s agents have a model of the model; here we have a situation where it is more appropriate to have macro foundations of the micro foundations of the macro model you want to make. • Minsky’s critique of the surplus approach gives us come clues as to how dynamical Minskian models would differ from neoclassical synthesis models. Minsky says that the surplus view of the economy needs to be adjusted if we wish to understand determination of effective demand and the mechanisms of effective demand failure. Economists are perennially concerned with resource utilization and resource creation. Resource creation needs to explain how ‘anarchic’ market economy leads to largely coherent use of resources. Money finance and capital assets are “ingredients of a truly dynamic analysis” (Minsky 1983 p. 2). • Thus, Walrasian micro cannot lead to a macro where capital accumulation is explained. The main propositions of the neoclassical synthesis do not provide a foundation to build on once money, finance, and capital assets are considered. According to Minsky, the technical problem is that these models only function when we assume depreciated initial costs are a condition of the equilibrium in the model, which implies that the present value of future profits were perfectly known at the time of an agent’s investment decision “In order to formulate the type of capitalist economy one wants to construct in the former Soviet areas, in order to determine how capitalist economies that are not now working well need to be reformed and in order to determine what needs to be done to make capitalism work, it is necessary to build upon Peter Albin's felicitous insight "each agent in the model has a model of the model."
  11. 11. Minskian Models • What exactly is the model of the model that guides an agent as he operates in the economy, an economist as he comments upon the economy, and a public official as he legislates or administers in his official capacity? This idea that legislators and the members of the policy public community have a model of the economy in their mind is of especial importance when an institutional structure is being created virtually de nova and when an institutional structure shows the stresses and strains that the richer capitalist economies such as the United States is now showing” (Minsky Manuscript 1993 p. 36-37). • Minsky’s later promotion of and co-authorship of an article on dynamical modeling with Domenico Delli Gatti and Mauro Gallegati, later matured in to their work in Agent Based Modeling methods which apply agent based assumptions from Minsky’s Financial Keynesian legacy. This period of Minsky’s research program shows that Minsky thought closed system mathematical methods were definitively passé. Finally, the tools Minsky was hoping for have arrived, and many scholars in many fields are confronted with the poverty of theory that has resulted from trying to apply static methods long after we realized they were inadequate to the task and long after they had become obsolete in other fields of human inquiry.
  12. 12. Minsky Minsky: Frontiers for Macrodynamic Models using applied GISsc • “Our great ancestors, such as Schumpeter, are useful as they help us to understand the problems with which we struggle. There is no single true meaning of a seminal text, for such text always breed interpretation, which reflects the light each reader brings to the text. Obviously each brings his own problems and perspectives. Thus what follows is a personal interpretation. As should be expected, I hold that the essential contribution of Schumpeter consists of a vision and an analytical framework which reinforces the validity of my prior positions on economic theory” (Minsky, 1988 p. 2-3).
  13. 13. The Spatial Turn: Around the Corner in Economics • Sui’s piece GIS Cartography and the ‘Third Culture’ makes the point that the problems with “general linear reality” were confronted in other fields only once dynamic methods were possible. • At the same time the critical geography of place gained momentum, another innovation in geography sped up as well. This geography, based in the rigorous mathematical background of many practitioners in the field, grew from new technological developments, especially Geographic Information Systems (GIS). Not content simply to apply the new tools, however, “geographers became increasingly concerned with the fundamental theoretical issues related to spatial data handling,” geographer Daniel Sui points out. “Geographers were no longer intellectually satisfied with mere technical innovations. If GIS had become the answer, many geographers were itching to ask, what was the question?” (Ayers in Bodenhamer, Corrigan and Harris 2010 p. 2)
  14. 14. Dynamic Models: Space, Time, Contingency • To understand deep contingency we must try to comprehend a society as a whole, its structures of ideology, culture, and faith as well as its structures of economics and politics. All structures must be put into motion and motion put into structures. As literary scholar Raymond Williams insists, “Determination of this whole kind— a complex and interrelated process of limits and pressures— is in the whole social process itself and nowhere else: not in an abstracted ‘mode of production’ nor in an abstracted ‘psychology.’” • Or, as anthropologist Sherry Ortner explains, “A practice approach has no need to break the system into artificial chunks like base and superstructure (and to argue over which determines which), since the analytic effort is not to explain one chunk of the system by referring to another chunk, but rather to explain the system as an integral whole (which is not to say a harmoniously integrated one) by referring it to practice.” And, of course, space and time are crucial components of that integral whole. • By its very nature deep contingency depends on larger processes, on interconnected systems. Portrayals of particular places, often apprehended through the finely grained portrayals of a case study, struggle to convey what we might be able to see on a broader canvas. Deep contingency cascades throughout a society, but it has to start somewhere, often in political or economic decisions made in capitals or metropoles. Mapping offers a way to see deep contingency in motion, rippling and sweeping across space and time. (Ayers in Bodenhamer, Corrigan and Harris 2010 p. 7)
  15. 15. Dynamical Models: Space, Time, Semantics “The trick is to build a dynamic relationship between the data by establishing some measure of responsivity between the spatial coding, temporal referencing, and linguistic tagging of data. In other words, the three key referencing systems— space, time, and language— might be engineered in such a way that changes in one ripple into the others.” “How would qualitative data be resited in space or time or both when it is retagged? How could unexpected intersections of spatial and temporal references for data lead to retagging that data? How can a GIS do this work of humanities researchers in a way that maximizes the sheer power of electronic information processing and display?” The Spatial Humanities: GIS and the Future of Humanities Scholarship (p. 85). Indiana University Press. Kindle Edition.
  16. 16. Conclusion: Agents in the World The agents of the model have a model of the model and they should also be situated in time and space.