Capitalism is Inherently Unstable

Reddit

“Why capitalism fails” is the intriguing and misleading headline of an article in The Boston Globe. It is a reminder of the theories of Hyman Minsky, who pointed out the obvious: capitalism is inherently unstable…it proceeds in booms and busts…not steady, incremental growth. Of course, that is just the way it works – like nature herself. And that’s why people don’t like capitalism…they can’t control it. So, whenever a bust comes, they imagine that it has ‘failed’ or ‘broken down.’ Then, they propose ways to fix it.

“Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own,” starts the article. “Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

“Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a ‘Minsky moment,’ and a growing number of insiders began to warn of a coming ‘Minsky meltdown.’

“‘Minsky’ was shorthand for Hyman Minsky, a hitherto obscure macroeconomist who died over a decade ago. Many economists had never heard of him when the crisis struck, and he remains a shadowy figure in the profession. But lately he has begun emerging as perhaps the most prescient big-picture thinker about what, exactly, we are going through.

“A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy.”

Economists went off their heads in the last few decades. They thought capitalism would make us all rich. And they thought capitalism automatically tended toward beneficent equilibrium.

Here at The Daily Reckoning, intuitively, we guessed the contrary. The system produces a kind of orderly chaos…in which the rich are frequently impoverished, the proud are humbled…and the goofballs who think capitalism fails inevitably make things worse.

Until next time,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Reddit

Leave a Reply

21 Comments on "Capitalism is Inherently Unstable"

Notify of
avatar
Sort by:   newest | oldest | most voted
David Lloyd
Guest
Exactly its a Recurring Finiancal Social Problem fed by being given the right to climb up the social ladder by borrowing somebody elses production thrift and savings without any concern of how it was created The only concern of these lazy mindless takers of overblown self inportance– is– self and show, The accumulated trouble since the 60-70s now is that there is millions of overblown lazy lots, playing with trillions of dollars worth of overblown assets,with the simple expectation told by our out of control polititions that the social responsibility of the present is O.K because it can be passed… Read more »
dsylexic
Guest

well bill, you arent gonna like what minksy proposes as a solution. he is a communist of the nth order.also,austrians have showed that capitalism is not inherently unstable as he claims (its only as stable as a ‘language’ is).it is dynamic but not prone to boom and busts of huge magnitudes UNLESS acted upon by exogenous actors like governments,central banks etc.
i prefer liberty over communism anytime.Minksy is only describing the govt controlled/central bank policed bastardized version of cronyism we have now.

NickW
Guest
Dyslexic “I prefer liberty over communism anytime”. But what makes liberty – presumably another word in this context for democracy – any less unstable. Democracy does fail again and again for the simple reason people ALWAYS vote for the party promising each individual he or she will receive more than is taken from them and politicians always make this promise. Finally, as right now, the piper has to be paid but the cupboard is bare. So all of those goodies given and promised must now be taken back and for many the future will erase the plans of the past.… Read more »
Lachlan Scanlan
Guest

I think we do live in under an authoritarian type system…just of the Claytons kind. Democracy fools people into thinking they have power over government. All government systems have proven unstable. Maybe democracy will persist longer, the enemy of the people hidden behind a facade of lies and deceptive notions. Hard to pin down an enemy which keeps moving/changing.
Still we’re all the same…rulers, the ruled. Give a child everything it wants it becomes wreckless and corrupt. And power corrupts those who rule…eventually, sometimes quickly.

Daniel Newhouse
Guest

The enemy of the people is the people themselves. They don’t want freedom. They don’t want fair competition. They want leverage and an advantage over their competitor’s.

Dan
Guest
I can’t agree with Daniel Newhouse’s sentiments. I think people (rich and poor alike) by and large want freedom and fairness. The people are thus not the enemy of themselves, but are merely weak and foolish – they are no match for the elite (now a global elite) and while they are so much deceived they cannot begin to fight back. People usually don’t want others to be crushed, or bled dry, or subject to parasitism, unless they themselves are driven by a culture of greed and hatred – does that apply to you? Most people, if you talk to… Read more »
Charles  Norville
Guest
I think we need to remove our selves from the philosophies Dan. Really what Daniel Newhouse is saying (I suggest) is part of the inherent flaw(s) of humanity. The fact is no matter how powerful a nation is they cannot rectify the health, education, transport, unemployment etc the wealthy get wealthier as a consequence of animal greed and leadership corruption and yes what you indicate, (I suggest) lack of genetic or biological will, stupidity. Human being are less organised than ants or bees – which require absolute biological rules. Humans are too diverse to maintain any control or rather the… Read more »
Dan
Guest

Just briefly in response, ‘animal’ greed and leadership corruption are not dominating traits of human (or actually animal) behaviour in all situations, so it needn’t be the way you see things, Charles, although such assumptions form the basis of the atheist/materialist philosophies. But of course this isn’t the right place to debate such things. Ultimately we want to know, is the market going to go up, or down, is gold the way to go, etc? By unveiling the mystery of the markets and the world economy, we can conquer them, and all make ourselves a handsome buck, right?

Charles  Norville
Guest
But if gold takes over and becomes important the Govts will want to own it, I don’t trust certificates. Silver is 1/60+ the price of gold yet silver is 1/17 abundant in earth’s crust. Silver is an industrial metal and can’t be made too expensive ie its not 1/17 the price of gold so gold by default I suppose becomes the trader…..so is it not about purchasing power, we need silver to be a fairly stable price because of the things we purchase with it in manufacturing? Yes gold is good to trade with (by default maybe), but considering the… Read more »
Dan
Guest
Silver seems like it is sensibly priced, given its utility (it’s not a very stable metal in that it quickly oxidizes, so as money it has to be part of an alloy – which might complicate things a bit). Gold retains a lot of speculative appeal which puts me off it a bit – there are some big questions left unanswered for me as to how the gold market really works: are the inventory figures cooked? will the central banks pull another rabbit out of the fiat-money hat? I do think that an objective currency is a critical step towards… Read more »
Lachlan Scanlan
Guest
Every human inherits an anxious, vulnerable state. We may choose to be strong, behave rational or moral (and these may be admireable) but the native condition is and remains anxious/vulnerable. Every human seeks therapy to mitigate against this state and we will conceal these efforts with varying degrees of success. We will control something somewhere, something small, large or intermediate… a pile of money, a relationship, a country (plural relationships), a smoking habit or maybe just a tea drinking ceremony. Our apparent control allows us some “comfort”(mitigates vulnerability/validates ego). Like the drug, the potency of these therapies decline with use.… Read more »
Biker Pete, Brighton, Ont., Canada
Guest
Biker Pete, Brighton, Ont., Canada
An observation on precious metals: Having just visited Upper Canada Village (one of many ‘working’ historical towns we’ve toured) and spoken at some length with the tinsmith there, I was intrigued to then read the following, in a funny little tome “Achtung Schweinhund!” (Harry Pearson, 2008, p. 167): “… in terms of cost, tin lags behind only platinum, gold and silver in the table of precious metals, making it impractically expensive to use in pure form… ” Tin?!! Who’d have thunk it?!! We’ve watched Aboriginal women in the northwest of WA ‘mining’ tin by hand with goldpans, curiously concluding that… Read more »
Ross
Guest
Luther’s once called for his army to give their swords a twist in God’s name and so came The Reformation. God’s good graces and name have been well since abused by the Judeo religious sectarian warriors and that tradition was henceforth continued in matters of secular governance. “Don’t call me comrade” is effectively the call to arms for those that lend support to this revolutionary political manifesto. So at base this is an anti-manifesto of sorts, one that rises from a seminal historical critique. It should be one that seeks to constrain the political narrative in order to shield the… Read more »
The Outback Oracle
Guest

Great rant Ross…I’m not sure about the detail – I’m old enough to need to print it out on paper to really examine it.

The Outback Oracle
Guest

Dan

Maybe I have missed something. I am asking this genuinely for your opinion. I outlined a possible outcome for the next 3 to 5 years. You seem to disagree with it. Again, as I said, I am sure we are fundamentally on the same page but what do you see for the next 3 to 5 years in Aus?

Dan
Guest
Rudd’s policies are timed to expire within the next couple of years, as are those of many other nations. Within 18-24 months the curtain will be lifted on a new interntional monetary order, perhaps a new world currency. People are betting it’s going to be gold based, but I have my doubts. Any way, to me it will be a sad day when it all happens, because what happened in Russia and China last century was quite terrible, and it could happen again, given how centralized global power is becoming – and how rapidly this is occurring. Australia, on the… Read more »
The Outback Oracle
Guest

Yogi Berra eckoned ‘It is hard to make predictions, especially about the future’

Dan
Guest
Ross, your post makes for interesting reading, and summarizes much of what is being said around the various nooks and crannies of the Internet. I wait with bated breath for the downfall of central banking and garbage money, but how will it come about, if at all? Much of what you say about the vulnerability of the US military rings true (South Ossetia was a recent, painful embarrassment), and a conflict with Iran would bring about the sort of carnage that the desperadoes in Washington are drooling for. The one thing that calms the nerves when thinking about this stuff… Read more »
Biker Pete, Brighton, Ont., Canada
Guest
Biker Pete, Brighton, Ont., Canada

” …the narrative is bent toward the utopian illusion…” . Yes, I think that perception in your second paragraph sums it all up well, Ross.

Charles  Norville
Guest
If Gold renews its place, then wont the centralised Govts (that are left) control it perhaps silver to the plebs? The last depression employed lots of soldiers, Aus cannot raise an army to defend itself in the next historical chapter. Keynes was never really proven was he, WW2 was defaulting of many of the economic theories not just Keynes? We evolved so much from defaulting past. Political theories are not logical, laws and so on are inventions like markets. Markets needs to be naturally sustainable, when it storms the stock and banks take heed. Yet we as humans cannot stand… Read more »
Dan
Guest
“Yet we as humans cannot stand still, we must invent and/or do something useful, otherwise we are wasting our resources – we are wasting our time on earth.” .. how’s that for a thought for the day! Nice one Charles! I’m reminded of the fact that no matter what the system in place may be, it ultimately depends on people in power, their belief systems, their motivations and their subsequent world agenda. People were keenly aware of this fact during the days of Monarchy. Today the same applies, except it is more difficult to discern. Has this changed at all… Read more »
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au