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Two Harvard Economists on
Monetary Economy:
Lauchlin Currie and Hyman Minsky
Ivan Velasquez
BSc. Economics - Universidad N...
In November of 1987, Hyman Minsky
visited Bogota, Colombia, after being invited
by a group of professors who were
interest...
Ad in El Tiempo (a
Colombian newspaper)
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,
th...
The question then is:
What could be the topics of debate
between Lauchlin Currie and Hyman
Minsky?
Why I’m Interested on this topic?
Lauchlin Currie had significant influence in
the departments of economics at National
Un...
Lauchlin Currie and Hyman Minsky
Lauchlin who?
Lauchlin Bernard Currie
• Born on October 8th,
1902, West Dublin, Nova
Scotia, Canada
• Died on December 22n...
• (1926-1931) Studied at
Harvard University where he
met Allyn Young.
• 1931 he was awarded his PhD
for a thesis on bankin...
• 1934 became US citizen
and joined Jacob Viner’s
“Freshman Brain Trust”.
• Later that year he became
Marriner Eccles’ adv...
• 1941 FDR sent Currie on a
mission to China.
• 1943-1945 closely involved in
preparations for the 1944
Bretton Woods Conf...
Hyman Minsky
• Born on September 23rd,
1919, Chicago.
• Died on October 24th,
1996, New York.
• (1937-1942) Studied at
Uni...
• Inter WWII period.
• 1947 got his M.P.A
• 1954 got his PhD in
Economics.
• He wrote his dissertation
on “the relations b...
• 1975 published his book
John Maynard Keynes.
• 1986 published his book
Stabilizing and Unstable
Economy.
A point of coincidence
We can see that both authors have a point
of convergence. That is, their similar
dissertation topic...
Minsky and Currie on Crises
In his dissertation, Currie found that the causes
of the crisis of 1929 were due to the triump...
However, Frank Steindl (1995) is very clear in
showing that Currie did not share the whole
monetarist framework in his exp...
When Currie explains the causes of the 1937
crisis, his argument is different from the one put
forward by the Monetarist s...
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 wh...
• Then, it is possible to say that Currie was
in favor of what Minsky would later call
“Big Government,” which fits with t...
In a Colombian newspaper Currie was asked
about the crisis of October, 1987. For him,
there where internal factors related...
Minsky explained the 1987 crisis as follows:
“Over October 19 and 20, even as money
managers were trying to sell securitie...
Currie, then, in a less elaborated argument
gave a similar explanation to Minsky.
Minsky will explain the business cycle
t...
Another point of coincidence
Although the approach that Currie had in the
early 1930’s was different from Minsky’s
viewpoi...
Currie and Minsky on Fiscal Policy
Minsky used the term “Big Government” as
a way to label the role of the treasury in the...
It is interesting that both elements, which
Minsky considered important for the right
performance of the economic system w...
“The argument for Government deficit spending
… may be summarized as follows. After a
drastic decline in business activity...
Therefore, “a Federal spending program …
should be compensatory in both directions.
We must be as prepared to adopt activi...
For Currie there is no such thing as
crowding out or an inflationary process as a
consequence of the Federal income-
incre...
Minsky asked for the implementation of a Job
Guarantee policy as an element of the Big
Government’s policies against pover...
Another point of coincidence
The role of the Big Government in stabilizing
the economy and fighting the poverty
through pu...
Currie and Minsky on Central Bank
Currie was one of the proponents of the
100% reserves plan or also known as “The
Chicago...
Minsky wasn’t reticent to this proposal as
can be seen in his foreword to Phillips’
(1995) book.
“[a] sophisticated view o...
Which, as we said above, is very close to
Currie’s ideas of federal increasing-income
and also of his proposal for a 100% ...
However, as it was said before, Minsky did not
agree on the use of Open Market Operations
(OMO) as a fundamental part of t...
But Currie wasn’t naïve about the abolition
of the discount window. He saw the abolition
of this privilege as a way to pus...
The later Currie developed, what he called, “A
new theory of demand of money: the
‘accounting’ motive of banks” (1992) bas...
However, this theory does not fit into the
mainstream theory where banks are just
organizations that save and lend money. ...
Therefore, regarding this aspect, we have a point of
divergence between both authors. That is, the role of
financial innov...
A point of divergence
The role of Open Market Operations and the
Discount window in monetary policy. And the
outcomes of f...
Conclusion
We can see that there are some points of
convergence between the ideas of Minsky
and Currie overall on the topi...
There is, however, a point of divergence.
This point is related to the way that the
central bank should operate in a monet...
Is this just important as HET?
No, we could see that both authors have
points in common which can be
complementary. Currie...
Acknoledgments
I want to thank Dr. Roger Sandilands and Dr.
Randall Wray for their help in understanding
the works of Lauc...
Two Harvard Economists on
Monetary Economy:
Lauchlin Currie and Hyman Minsky
Ivan Velasquez
Email: idvwg@mail.umkc.edu
idv...
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Two Harvard Economists on Monetary Economy

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Two Harvard Economists on Monetary Economy

  1. 1. Two Harvard Economists on Monetary Economy: Lauchlin Currie and Hyman Minsky Ivan Velasquez BSc. Economics - Universidad Nacional de Colombia M.A. in Economics – University of Missouri–Kansas City
  2. 2. 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 of Colombia.
  3. 3. Ad in El Tiempo (a Colombian newspaper) on Minsky’s conferences about “Financial Instability” November 20th, 1987
  4. 4. 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.
  5. 5. The question then is: What could be the topics of debate between Lauchlin Currie and Hyman Minsky?
  6. 6. 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 professors.
  7. 7. Lauchlin Currie and Hyman Minsky
  8. 8. Lauchlin who? Lauchlin Bernard Currie • Born on October 8th, 1902, West Dublin, Nova Scotia, Canada • Died on December 22nd, 1993, Bogota, Colombia. • (1920-1922) studied at St. Francis Xavier’s University. • (1923-1925) studied at the LSE and got his BSc in economics
  9. 9. • (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 Schumpeter. • He constructed the first money supply and income velocity series for the USA. And attacked the “Commercial Loan Theory” (real bills doctrine).
  10. 10. • 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 Banking Act. • 1939 became Franklin Delano Roosevelt’s adviser.
  11. 11. • 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 Colombia’s presidents.
  12. 12. Hyman Minsky • Born on September 23rd, 1919, Chicago. • Died on October 24th, 1996, New York. • (1937-1942) Studied at University of Chicago. • 1941 earned his BSc in Mathematics. • 1942 went to Harvard University.
  13. 13. • Inter WWII period. • 1947 got his M.P.A • 1954 got his PhD in Economics. • He wrote his dissertation on “the relations between market structure, banking, the determinants of aggregate demand, and business cycle performance.”
  14. 14. • 1975 published his book John Maynard Keynes. • 1986 published his book Stabilizing and Unstable Economy.
  15. 15. A point of coincidence We can see that both authors have a point of convergence. That is, their similar dissertation topics: Banking and Business Cycles.
  16. 16. 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 bills doctrine). 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”.
  17. 17. 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.
  18. 18. 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)
  19. 19. 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)
  20. 20. • 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 (Currie, 1935).
  21. 21. 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).
  22. 22. 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)
  23. 23. 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.
  24. 24. 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.
  25. 25. 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.
  26. 26. 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”
  27. 27. “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, 1935)
  28. 28. 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).
  29. 29. 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.
  30. 30. 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 program policy: “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)
  31. 31. Another point of coincidence The role of the Big Government in stabilizing the economy and fighting the poverty through public jobs.
  32. 32. 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 money. Currie supported Open Market Operations instead of the Discount Window as a measure to control the banking sector.
  33. 33. Minsky wasn’t reticent to this proposal as can be seen in his foreword to Phillips’ (1995) book. “[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 schemes.”
  34. 34. 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 plan.
  35. 35. 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 Plan” 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.” (p. 172)
  36. 36. 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.
  37. 37. 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. 392).
  38. 38. 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
  39. 39. 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 credit. 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.
  40. 40. 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 regulation.
  41. 41. Conclusion 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 fighting poverty.
  42. 42. 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.
  43. 43. 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.
  44. 44. Acknoledgments 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 in 1987.
  45. 45. Two Harvard Economists on Monetary Economy: Lauchlin Currie and Hyman Minsky Ivan Velasquez Email: idvwg@mail.umkc.edu idvelasquezg@gmail.com

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