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Visions of Economic Instability

Paper Session

Friday, Jan. 6, 2023 12:30 PM - 2:15 PM (CST)

New Orleans Marriott, Preservation Hall Studio 3
Hosted By: History of Economics Society
  • Chair: Michaël Assous, University of Lyon 2

Minsky and Kindleberger: Fellow Travelling Theorists of National and International Financial Instability

Perry Mehrling
Boston University


In their 40 th anniversary reissue of Kindleberger’s World in Depression, DeLong and Eichengreen propose Hyman Minsky’s financial instability hypothesis as the underlying analytical core of Kindleberger’s account. The problem is that Kindleberger never mentions Minsky in the book, not even in the 1986 revised version, by which time he knew Minsky well, having given him prominent billing in Manias, Panics, and Crashes (1978), and organized an entire conference around his theory in Financial Crises: Theory, History and Policy (1982, with Laffargue). Why not? The answer is simple, as Kindleberger tells us himself in his “Banking and Industry between the Two Wars: An International Comparison” (1984). The Depression was fundamentally an international, not a national, crisis. Having myself written intellectual biographies of both men (Mehrling 1999, 2022), my goal in this paper is to establish the precise analytical connection between their theories, both of which find the origin of economic fluctuations in financial fluctuations (rather than vice versa, as is more common). Minsky’s theory is designed to explain post-WWII American experience, focusing on business investment spending financed by bank loans in an essentially closed economy, and the key emphasis is on fluctuation in business profit income to support debt. Kindleberger’s theory is designed to explain periodic international crises post 1750, as the expanding and integrating global market co-evolved with the developing role of international lender of last resort, and his key emphasis is not so much on income as on speculative prices. The mechanisms are different, but they share intellectual origins in the pre-war ferment of American institutionalism (Mehrling 1997), and it is at that level that we find their deep complementarity.

On the Importance of the Dynamic Leontief Model for the Development of Macroeconomics

Vincent Carret
University of Lyon 2 and Duke University


The input-output approach developed in the 1930s-1940s by Wassily Leontief elicited a number of comments and criticisms. One of the answers to the critics by Leontief, his collaborators and students was the development of dynamic extensions of the input-output model during the 1950s. Several dynamic mechanisms emerged in this literature, and fed the debates on and models of growth and fluctuations. Leontief favored a mechanism based on an accelerator theory of investment, which was the starting point of many empirical researches in capital theory. Solow and others favored a multiplier mechanism, which led them to emphasize monotonic solutions characteristic of a growing economy. In this paper, I retrace how these debates crucially influenced the development of macroeconomics, thereby challenging the narratives centered around Keynes and macroeconometrics.

On Theory and Models of Endogenous Economic Cycles: A Historical and Contemporary Perspective

Marco Gross
International Monetary Fund


The objective is to provide a perspective on how economic theory and models to explain self-evolving endogenous economic cycle dynamics have evolved over the past century. The evolution of system dynamics models is discussed, including their merits, alongside their shortcomings, some of which they share with contemporary DSGE models. Emphasis is placed on the appeal of agent-based model (ABM) methodologies, where “agents” ought to mean at below-sectoral level; and with their appeal stemming from the ability to generate rich real-world dynamics in structural and hence much less complex ways in ABMs (rather than in a reduced form manner). The model of Gross (2022, “Beautiful Cycles: A Theory and a Model Implying a Curious Role for Interest”, Economic Modelling) is used to spell out what may be the essential ingredients for endogenous cycle emergence. Overall, the aim is to help see the value of distancing oneself from the shocks paradigm and half-cycle-back-to- steady-state approach enshrined in DSGE modeling, and to foster the inclusion of debt/money in macro-financial models, for capturing their alleged essential role in driving cyclical macroeconomic dynamics.

Samuelson’s Last Macroeconomic Model: Secular Stagnation and Endogenous Cyclical Growth

Mauro Boianovsky
University of Brasilia
Michaël Assous
University of Lyon 2


On the occasion of the centennial of his mentor Alvin Hansen, Paul Samuelson published in 1988 a modified version of his seminal 1939 multiplier-accelerator model with the specific aim to address aspects of Hansen’s secular stagnation hypothesis. The “Keynes-Hansen- Samuelson” (or KHS, as he called it) was in particular built in order to provide an analysis of the effects of population growth on the trajectory of the economy. Several changes were then made. Instead of difference equations and a tight accelerator as in his 1939 model, Samuelson deployed differential equations and a flexible accelerator in order to produce a nonlinear limit cycle in the tradition of Richard Goodwin as well as a life-cycle saving hypothesis. Despite Samuelson’s strong claims for the analytical contributions of his 1988 paper, it has – in sharp contrast with the 1939 model – received only scant attention by macroeconomists and historians of economics alike. Samuelson’s 1988 paper was his last published macroeconomic model, along the lines of his long established tradition of non- optimizing macro-dynamics. Our proposed paper provides a close reading of Samuelson 1988, together with a discussion of how it historically links up with business cycle models advanced by John Hicks, Nicholas Kaldor, Roy Harrod and especially Goodwin, among others. Moreover, it investigates to what extent Samuelson’s 1988 failure to attract a large readership has to do with the fact that macroeconomists’ modelling strategy of endogenous business cycles changed sharply in the 1980s and after.
JEL Classifications
  • B2 - History of Economic Thought since 1925
  • E3 - Prices, Business Fluctuations, and Cycles