Longer Waves in Financial Relations: Financial Factors in the More Severe Depressions II
Moses Abramowitz, testifying in 1939 before the path-breaking hearings chaired by Senator Paul Douglas on "Employment, Growth and Price Levels," said "it is not yet known whether they (the long swings) are the result of some stable mechanism inherent in the structure of the U.S. economy, or whether they are set in motion by the episodic occurrence of wars, financial panics or unsystematic disturbances" [U.S. Congress 1959, 12]. In reading these hearings for a review article [Minsky 1961], I took exception to Abramowitz's casual identification of financial panics as exogenous, episodic elements in the generation of the cycles of experience. In a 1963 presentation to the American Economics Association, I argued that there is a mechanism in capitalist economies that has generated the longer swings in economic experience. This mechanism centers around the need for firms to finance investment spending and positions in capital assets externally and the cumulative changes in financial variables that result over the long swing expansions and contractions.1 The model that underlaid my 1963 paper is still attractive, even though it was based on the simple Hansen-Samuelson interaction between the accelerator and the consumption propensity. Let us suppose that the investment and consumption interactions combine to form a process that, if unconstrained, leads to an explosive expansion or decline