Two Harvard Economists on
Lauchlin Currie and Hyman Minsky
BSc. Economics - Universidad Nacional de Colombia
M.A. in Economics – University of Missouri–Kansas City
In November of 1987, Hyman Minsky
visited Bogota, Colombia, after being invited
by a group of professors who were
interested, at that time, in Post Keynesian
economics. There, Minsky delivered four
lectures, and in one of those lectures he met
Lauchlin Currie at the National University
Ad in El Tiempo (a
on Minsky’s conferences
about “Financial Instability”
November 20th, 1987
Thus, both alumni from the Economics
Ph.D. program at Harvard University had a
kind of debate in Bogota. Unfortunately,
there are no formal records about this.
The question then is:
What could be the topics of debate
between Lauchlin Currie and Hyman
Why I’m Interested on this topic?
Lauchlin Currie had significant influence in
the departments of economics at National
University of Colombia and Los Andes
University in Bogota.
He can be considered the master of masters
in Colombia since he taught in both
universities and his students became in our
Lauchlin Bernard Currie
• Born on October 8th,
1902, West Dublin, Nova
• Died on December 22nd,
1993, Bogota, Colombia.
• (1920-1922) studied at
St. Francis Xavier’s
• (1923-1925) studied at
the LSE and got his BSc
• (1926-1931) Studied at
Harvard University where he
met Allyn Young.
• 1931 he was awarded his PhD
for a thesis on banking theory.
• Stayed at Harvard until 1934.
There he was assistant of:
• Ralph Hawtrey, John H.
Williams, and Joseph
• He constructed the first money
supply and income velocity
series for the USA. And
attacked the “Commercial
Loan Theory” (real bills
• 1934 became US citizen
and joined Jacob Viner’s
“Freshman Brain Trust”.
• Later that year he became
Marriner Eccles’ adviser at
the Federal Reserve Board.
• 1934 published The Supply
and Control of money.
• 1935 drafted the 1945
• 1939 became Franklin
Delano Roosevelt’s adviser.
• 1941 FDR sent Currie on a
mission to China.
• 1943-1945 closely involved in
preparations for the 1944
Bretton Woods Conference.
• 1949 went to Colombia to
head a comprehensive country
survey for WB.
• Due to McCarthyism he stayed
in Colombia the rest of his life
and became an adviser of
• Born on September 23rd,
• Died on October 24th,
1996, New York.
• (1937-1942) Studied at
University of Chicago.
• 1941 earned his BSc in
• 1942 went to Harvard
• Inter WWII period.
• 1947 got his M.P.A
• 1954 got his PhD in
• He wrote his dissertation
on “the relations between
banking, the determinants
of aggregate demand,
and business cycle
• 1975 published his book
John Maynard Keynes.
• 1986 published his book
Stabilizing and Unstable
A point of coincidence
We can see that both authors have a point
of convergence. That is, their similar
dissertation topics: Banking and Business
Minsky and Currie on Crises
In his dissertation, Currie found that the causes
of the crisis of 1929 were due to the triumph of
the “banking or commercial loan principle” (real
Thus, Currie’s explanation of the process that
led the United States to the 1929 crisis is closer
to the latter interpretation made also by
Friedman and Schwartz that would later be
labeled in the 1960’s as “Monetarism”.
However, Frank Steindl (1995) is very clear in
showing that Currie did not share the whole
monetarist framework in his explanation of the
crisis and, moreover, he then set himself apart
from the idea that the central bank can control
the supply of money.
When Currie explains the causes of the 1937
crisis, his argument is different from the one put
forward by the Monetarist school. On this topic,
Currie’s position is very similar to the position
that Post Keynesians will later address on the
subject of economic crises.
He points out that the causes of this crisis were
the “lower level of the Government’s
expenditures and the higher level of tax
receipts” (Currie, 1937, p. 1)
In the review of Keynes’s General Theory
that Currie wrote for Eccles and the FED’s
board in 1937, he sates: “At a time when the
national income is shrinking the Government
is seeking to raise revenues and cut
expenditures. This merely intensifies the
deflationary trend” (1937, pp. 2–3)
• Then, it is possible to say that Currie was
in favor of what Minsky would later call
“Big Government,” which fits with the idea
that Currie labeled as Net Government’s
contribution; that is, government
expenditures that help increase the
national income and stabilize the economy
In a Colombian newspaper Currie was asked
about the crisis of October, 1987. For him,
there where internal factors related to the
financial sector, specifically mutual funds, in the
United States and the possibility that the
amount of external credit in developing
countries was not paid. The latter caused
American banks to adopt measures that hurt
external economies and the mutual funds tried
to sell their market shares. This led to the
creation of a deflationary process in the market
(Currie, November 16, 1987).
Minsky explained the 1987 crisis as follows:
“Over October 19 and 20, even as money
managers were trying to sell securities, the
block traders were both reluctant and
increasingly unable to take positions [buy
assets]. Furthermore because the losses of
October 19 had comprised the equity of some
position takers (these organizations mark their
holding to market at the end of every business
day) on October 20 banks to withdraw credit
from block traders as well as from floor
specialists.” (1988, p. 12)
Currie, then, in a less elaborated argument
gave a similar explanation to Minsky.
Minsky will explain the business cycle
through his financial instability theory, going
a step forward from Currie on this aspect.
Another point of coincidence
Although the approach that Currie had in the
early 1930’s was different from Minsky’s
viewpoint, Currie’s later approach was closer
to a Post Keynesian interpretation of crises
and the ways this problem can be solved by
strategic government intervention.
Currie and Minsky on Fiscal Policy
Minsky used the term “Big Government” as
a way to label the role of the treasury in the
stabilization of the economy after the Great
Depression. For Minsky the role of the
treasury (Big Government) and the central
bank (Big Bank) are essential for the
performance of capitalism since they do not
let it goes down.
It is interesting that both elements, which
Minsky considered important for the right
performance of the economic system were
proposed, in some way, by Currie.
For example, in his paper “Federal income-
increasing expenditures, 1932-1935”
“The argument for Government deficit spending
… may be summarized as follows. After a
drastic decline in business activity it is
questionable whether sufficient new investment
will take place “naturally” to offset the current
disinvestment and current saving [aggregate
monetary income minus community
expenditures on consumer goods]. Broadly,
speaking, increased expenditures wait on
increased demand, and increased demand
waits on increased expenditures.” (Currie,
Therefore, “a Federal spending program …
should be compensatory in both directions.
We must be as prepared to adopt activity-
depressing measures at certain times [such
as facing an inflationary process] as are to
adopt activity-stimulating measures at others
[such as facing a deflationary process]”
(Currie, 1992, p. 308).
For Currie there is no such thing as
crowding out or an inflationary process as a
consequence of the Federal income-
increasing spending policy. For him this is “a
powerful weapon to combat evils of
economic instability in the future” (Currie,
1992, p. 309). Just like Minsky, Currie did
not see the economy as a stable process.
Minsky asked for the implementation of a Job
Guarantee policy as an element of the Big
Government’s policies against poverty.
Similarly, in his review of Keynes’s General Theory
to Eccles, Currie openly calls for a public jobs
“Three lines of attack on this problem [insufficient
volume of investment] are suggested. These are
monetary policies affecting the rate of interest, a
policy of ‘socially-controlled investment’ (a
permanent public works program?), and, finally,
policies designed to stimulate consumption.”
(2016, p. 64)
Another point of coincidence
The role of the Big Government in stabilizing
the economy and fighting the poverty
through public jobs.
Currie and Minsky on Central Bank
Currie was one of the proponents of the
100% reserves plan or also known as “The
Chicago Plan” in the 1930’s, at that time he
asked for more control over the supply of
Currie supported Open Market Operations
instead of the Discount Window as a
measure to control the banking sector.
Minsky wasn’t reticent to this proposal as
can be seen in his foreword to Phillips’
“[a] sophisticated view of the significance of
government debt as an asset and of
government deficits as income-maintaining
devices lay behind the 100 per cent money
Which, as we said above, is very close to
Currie’s ideas of federal increasing-income
and also of his proposal for a 100% reserve
However, as it was said before, Minsky did not
agree on the use of Open Market Operations
(OMO) as a fundamental part of the “Chicago
He notes, according to Phillips (1995), that “To
date the Federal Reserve System is a lender of
last resort to a commercial bank in distress. It is
not a lender of last resort to the money market.”
But Currie wasn’t naïve about the abolition
of the discount window. He saw the abolition
of this privilege as a way to push the banks
to control their reserves. However, he knew
that the abolition of the discount window was
not politically practicable.
The later Currie developed, what he called, “A
new theory of demand of money: the
‘accounting’ motive of banks” (1992) based on
his experience in Colombia.
In this paper Currie presents a definition of
money that fits into the exogenous theory of
money, since for him, “… a clearer distinction
between money and non-money is necessary,
and money must be something that whose
supply can be limited and controlled” (1992, p.
However, this theory does not fit into the
mainstream theory where banks are just
organizations that save and lend money. On
the contrary, banks have a profit motive;
they are not neutral players.
Also for Currie, the introduction of
administrative innovations would reduce the
cost that banks face, also competition
among banks would be translated into less
costs to the borrowers
Therefore, regarding this aspect, we have a point of
divergence between both authors. That is, the role of
financial innovations and the perspective of money
For Minsky, by following Schumpeter, the
innovations in the financial system bring instability to
the economy (stability causes instability). On the
contrary, Currie’s idea of banking innovation would
bring less costs to the borrowers since it is true that
it could be easier to get money lending.
The problem is that this financial innovations without
an accurate regulation could hurt the economy.
A point of divergence
The role of Open Market Operations and the
Discount window in monetary policy. And the
outcomes of financial innovations in the
banking sector. For Currie those innovations
would be positive, meanwhile for Minsky
they could bring problems without accurate
We can see that there are some points of
convergence between the ideas of Minsky
and Currie overall on the topics related to
the role of government expenditures and the
importance for society of public jobs for
There is, however, a point of divergence.
This point is related to the way that the
central bank should operate in a monetary
economy and the effects of financial
innovations in the economy.
Is this just important as HET?
No, we could see that both authors have
points in common which can be
complementary. Currie’s theory of the
Leading Sector and Minsky’s Employer of
Last Resort are compatible and give us the
opportunity to explore a theory of
endogenous growth in a Minskyan scheme.
I want to thank Dr. Roger Sandilands and Dr.
Randall Wray for their help in understanding
the works of Lauchlin Currie and Hyman
Minsky and the information they provided
me. Also to Dr. Mario García-Molina and Dr.
Fernando Tenjo who answered questions I
asked about Minsky’s conference in Bogota
Two Harvard Economists on
Lauchlin Currie and Hyman Minsky