Keynes and Institutional Economics

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 There has been a lot written about the relationship between the work of John Maynard Keynes

and Institutional Economics (IE).  Here, I want to specifically look at the work of Hyman Minksy and his

view on this question (Joan Robinson who will we talk about later as well). Minsky was a financial and

macro economist who took seriously the work of Kenyes.  The "Minsky moment" became famous during

the 2008 financial crisis, defined as a moment when major financial players realized that everybody was

bound up with everybody else and liquidity was drying up everywhere leading to collapse.

Minsky actually wrote a book called “John Maynard Keynes” in the 1970’s which was re-released

in 2008.  Minsky had bona fide institutional credibility as a winner of the Commons-Veblen award

from the Association of Evolutionary Economics.


Minsky writes in the first chapter of his Keynes book that, “The General Theory, although concerned

with the implications of institutional usage….does not contain any detailed description of banking and

financial institutions. Such detail is contained in A Treatise on Money. Thus blending the institutional

analysis of A Treatise on Money with the theory in The General Theory seems to be an appropriate way

to integrate the two.  This points to two key features in institutional economics.  Generally speaking,

I believe, while IE scholars may not agree on a lot, there is agreement that IE theories and frameworks

are historically, geographically  and culturally contingent.  In other words, the work they do must respect

the time, people and palace characteristics of what they are studying and that this same work will not

necessarily fit another time and place.  Here we see Minsky arguing that Keynes work, to be truly

understood in the right frame of mind, should be considered in the same way.  This is important as

the traditional application of Keynesianism in macroeconomics is one that appears not to be time

or place bound.  Minsky sees this as a major error.  His Keynes book is about reinterpreting and

understanding this way of thinking in a very different manner from the textbooks.


To briefly summarize Minsky’s main argument as he lays out the case, in understanding Keynes, that

capitalism is inherently a flawed system and that these flaws are the source of instability and the cause

of ongoing unemployment.  In particular, Minsky updates Keynes specifics on the type of financial

capitalism, that was not as prevalent in Keynes own time, and how that system from the 1950’s -1970’s

has created its own dynamics of instability.   This is an important distinction from the neoclassical view

which absorbed Keynes and took his model as a special case that was rare and could be addressed

through simple adjustments, but that otherwise argued that capitalism was stable and worked to achieve

equilibrium and efficiency. This was known in policy circles as “fine tuning” the economy.  Minsky believed

and argued that this was a plain misinterpretation of Keynes and missed the point of what Keynes was

arguing. we will continue to think and write about these issues and specifically how Keynes model,

as interpreted and understood by Joan Robinson and Hyman Minsky, ties to back to ILE.


We will be talking about some of this as part of the webinar upcoming for the

Association for the Promotion of Political Economy and Law (APPEAL) at:


PPEAL reading group:  What is Capitalism?  Session 3 

Friday, Sept. 25, 2020, 3pm Eastern Daylight Time via Zoom 

To Register click here.


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