Money, Banks and Finance in Economic Thought

Marx and the “Minsky moment” – Liquidity crises and reproduction crises in Das Kapital

De Grandi Anthony, Universite Paris 1 PHARE
Tutin Christian , UPEC et PHARE

Karl Marx never put a final point to his theory of economic crises, which remained unachieved and torn between profitability crises and realization crises. According to Marx, every crisis goes through what he called a “monetary moment”, which is the moment – usually called since 2008 the “Minsky moment” – when credit can no more be substituted to cash payments, because the bank themselves are facing liquidity needs. This paper argues that, not only in the manifestation of the crisis, but also in its path and magnitude, monetary and financial mechanisms are at the core of Marx’ vision of capitalist instability. But two conditions are required for transforming this approach into a consistent theory of crises: a clarification of his monetary theory of interest, and an explanation of the link between financial instability and the reproduction process. As shown in section 1, the reference to liquidity crisis goes through all his work-from the so-called formal possibility of crisis to the comments on the crises of his time-and allows us to examine the complex apparatus of notions designed for addressing the monetary and financial dimension of crises. Section 2 briefly presents, Marx’ financial concepts including fictitious capital, interest-bearing capital or banking capital. Section 3 is devoted to a discussion of Marx monetary theory of interest, which is not the same as Keynes but clearly departs from non-monetary classical view. We advocate for a bank rate interpretation of Marx money rate. Section 4 shows how the mechanisms of financial instability in Marx’ writings involve a notion of weakening of the financial structure, which has much in common with Minsky's hypothesis of financial instability. Section 5 addresses the missing point in Marx’ theory, which is the formal link between “real” accumulation of capital and the development of finance. Starting from Hilferding’s Finance Capital, we suggest that this link might be established in a bi-sectoral model of the economy where bank credit allows the displacement of investment flows and thus the formation and enlargement of disproportions which will come to an end at the moment when the credit collapses. All those elements put together, offer a draft of an unformulated Marxian theory of financial instability, and make Marx a forerunner of I. Fisher, Ch. Kindleberger and H. Minsky. Our developments rely on the fourth and fifth sections of book III of Capital, but also on the Theories of Surplus-Values, the Contribution to the Critique of Political Economy and book I and II of Capital. We shall also use the occasional and contingent comments and reports on those financial crises of which Marx and Engels were close observers between 1848 and 1882.

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Keywords: Liquidity crises, reproduction crises, Marxian theory of crises, financial instability

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