27 Mayıs 2012 Pazar

The Importance of Minsky, Marx and Schumpeter in Macroeconomic Field


Introduction

   There are different arguments in order to explain the crisis of capitalism. These arguments have interpreted in different forms both by capitalist approach and the socialist approach.   Within that frame of these analysis about crises, Hyman Minsky's ''financial instability hypothesis'' takes an important place in these arguments. Hence, we begin with an explanation of the strengths and weaknesses of that hypothesis. After that, we'll mention on the James Crotty's article which is about the Centrality of Money, Credit and Financial Intermediation in Marx's Crisis Theory. Then, we will continue with the basic characteristics of the Marxian approach which is differed from Keynes and Minsky. Finally, we will point on the Schumpeter's insights about the crisis theories in addition to the Keynes, Minsky and Marx. Therefore, primarily, we begin with the explanation of the background of the Minsky's financial instability hypothesis. Then, together with the explanation of that hypothesis, we will try to show its strengths and the weaknesses.

Background of the Financial Instability Hypothesis

   We should have to consider both of the internal and the extarnal factors in explaining the crises of capitalism. Generally, explanations depend on these external factors, the internal factors take an important place. Here, at that point, the Minsky's financial instability hypothesis confronts us within the frame of the analysis of the internal problems. Before the explanations of that hypothesis's strengths and weaknesses, we should briefly look at the other arguments which underpin this hypothesis. Therefore, at this point, Marx's (1976), Fisher's (1933) and Stiglitz's and Weiss's (1981) similar arguments are placed as the building stone in order to understand the hypothesis. First of all, the profit motive is lay under the Marx's argument. Pursuing for the profits of the entrepreneurs creates production disorder and instability in the economy as a whole. At that juncture, the beginning of the production disorder is partly shaped by the loan of Money (Marx, 1976). This is used for the purchase of the labor power and the means of production (Marx, 1976). Because entrepreneurs invest more in case of the profit motive, there will be an unstable and unplanned development in an economy. Also, there will be a creation of credit chains so as to expansion of production and investment in the process of that development (Marx, 1976). However, any trouble that will occur in the production process will create problem for these credits and the firms will begin to go in a bankrupt (Marx, 1976). This problem will be also valid for the lenders as corporations. On the other hand, these issues will cause to dissolution of asset values and to decrease in prices of that financial assets (Marx, 1976). Hence, both of these problems will increase the possibility of the capitalism downfall and cause to the creation of long crises. The 1929 Great Depression and the 2007 Financial Crisis are the examples of that situation. Secondly, in my opinion, Fisher's arguments have important characteristics which are placed in the Minsky's approach. Fisher specifies that the inefficient position of the financial markets, the economy place up or down of the equilibrium (Fisher, 1933). He grounded that idea to the 1929 Great Depression case. He also points that it is evolved a bankrupts and crisis bound to debt deflation in case of the negative relations between price movements and the debt amount in the market (Fisher, 1933). According to Fisher, any bankrupty of firm will affect negatively to the other firms in the case of the bound together of the firms with credit chains and hence, the crisis will become inevitable (Fisher, 1933). We can also see that these arguments are accordance with the Marx's interpretation. Finally, the main point which is stress on by Stiglitz and Weiss, is the issue of asymmetric information. They present possible troubles that can occur in financial markets based on the asymmetric information argument. Stiglitz and Weiss mentions that the asymmetric informations disrupt the credit markets (Stiglitz and Weiss, 1981). The banks can not support just as the profitable investment, they can support unprofitable investments due to the asymmetric informations (Stiglitz and Weiss, 1981). Therefore, the credits which will lend to firms, will represent average value independently from the value of the investments (Stiglitz and Weiss, 1981). In this case, meanwhile profitable investment will not find the sufficient financial sources, unprofitable investment will find more financial sources (Stiglitz and Weiss, 1981). That's why, at that juncture, the importance of the uncertainty emerge together with the asymmetric information. In my opinion, these arguments also present compatible views with the Minsky's arguments about the troubles in financial markets.

Minsky and the Financial Instability Hypothesis

   Briefly, according to financial instability hypothesis, the main reason of the instability problem in different economies is depended on the high borrowing rate of investors led by the financial system. As Minsky (1992) points that '' the financial instability hypothesis is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated ''. Therefore, mainstream economies are typically dwelled the investment increases in company with indebtedness and following the depression phase (Minsky, 1986). On the other hand, the theoretical basis of the Minsky's Financial Instability Hypothesis can be seen in his famous book which is Stabilizing an Unstable Economy. According to Minsky (1986), the fundamental propositions of the financial instability hypothesis are

  1. Capitalist market mechanisms can not lead to a sustained, stable-price, full-employment equilibrium.
  2. Serious business cycles are due to financial attributes that are essential to capitalism (Minsky,1986).

   Minsky (1986) also mentions that '' these propositions – and thus the financial instability – stand in sharp contrast to neoclassical synthesis, which holds that unless disturbed from outside a decentralized market mechanism will yield a self-sustaining, stable-price, full-employment equilibrium ''.

   The arguments of Minsky are coupled with the Keynes and he is one of the leader economist of the Post-Keynesian approach. Minsky has an approach which takes the financial structures and financial relations including the Keynesian point of views. Minsky (1992) also points that '' as an  economic theory, the financial instability hypothesis is an interpretation of the substance of Keynes's '' General Theory '' ''.  Constructed his hypothesis in the lights of these arguments, Minsky had a crucial contribution to an economic literature as part of analysis of financial crises. In Minsky's approach, the financing method of the investments and the results of the way of that financing takes an important place. According to Minsky, the deficiency of the Keynesian theory is the result of an exclusion of the capitalist financing (Minsky, 1986). As it is seen that the financial transactions and the financial relations are basic points to understand the capitalist crises according to Minsky. So much so that, capitalism is a financial entire at heart (Minsky, 1986). There is a financial connection behind any transactions. The real economy is mainly tied to financial relations. For that matter, we can say that, for Minsky, finance is everything for capitalism. So that, at this point which impelled Minsky to the financial instability hypothesis for an explanation of crises of capitalism.

   Moreover, according to Minsky, there should be a continued necessity to the intervention to economy because of the problems inherently caused from the process of capitalism (Minsky, 1986). Also, Minsky stresses on the requirements of new instruments in order to understand the economic problems (Minsky, 1986). At that juncture, it should be examined the causes of these three questions so as to develop the economic policies:
  1. How the ruling market mechanism achieves coherence in particular outputs and prices, 
  2. How the path of incomes, outputs, and prices is determined, and
  3. Why coherence breaks down from time to time: that is, why is the economy susceptible to threats, if not the actuality, of deep depressions? (Minsky, 1986).

   Furthermore, Minsky (1986) points that '' these questions need to be answered in the context of the institutions and financial usages that actually exist, not in terms of an abstract economy. It may be that what the neoclassical theory ignores, namely institutions, and in particular financial institutions, leads to the observations it can not explain ''.

   So that, I will mention on the strengths and weaknesses of the Minsky's Financial Instability Hypothesis in the lights of these above informations. I will stress on three points for the strenghts which are the ideas for the price and profit, the problem of investment and its financing harmonizing with the uncertainy and risk and the criticism of the neoclassical economy within the frame of financial instability hypothesis. On the other hand, the weaknesses will constitute on the absence of analysis for class struggle in shaping of capitalist relations and the insufficient explanations for the reasons of people's indebtedness.

   Neoclassical price theory is remain incapable to explain the market efficiency due to not considering the capitalist economy with its sophisticated financial structure (Minsky, 1986). As we know, according to neoclassical price theory, the role of the price is to provide the scarce resource allocation and to determine the production level in the economy. However, the relations of price with debts and the other issues are neglected in that theory because the usage of financial assets as money due to get profit from the production does not place at the center of that price theory.
   However, Minsky's investment analysis based on the price and profit brings a new method to the macro dynamics. The prices have characteristics such as creating profit, causing the way of borrowing and providing a new possibilites of the new types of goods production as well as neoclassics' arguments of determining the resource allocation and the production level (Minsky, 1986).

   Moreover, the validate of previous investments should be provided via to the prices of production goods in order to incline new investments (Minsky, 1986). Therefore, capital prices and the financial asset prices play an important role for the investment in that tendency (Minsky, 1986). In my opinion, these two price order inclusion to investment provide a crucial contribution to the modern macro dynamics.
  
   Furthermore, the another important point of the Minsky's hypothesis is the presenting of relationship between investment and its financing. According to Minsky's argument, it is not possible to present the method of determining of investment decision without pointing out the sources of the investment financing (Minsky, 1986). At that juncture, three factors or the sources of financing determine the investment which are cash flows and assets, internal funds and external funds (Minsky, 1986). This last source which is external funds is achieved by way of borrowing (Minsky, 1986). Minsky (1986) points of the negative results of that funds as '' if external (borrowed) funds are involved, then the supply of price capital also includes explicit finance costs – most importantly the interest rate but also all other fees and costs – that is, supply price increases due to lender's risk ''. At this point, we can also see the adding of the uncertainty and the risk concepts into the investment financing. For example, if the investment financing supports by the debts, there will be an emergence of the risk in the payments of the debts with the issue of uncertainty. If the debtor can not be able to pay their debts due to any reason, the possible debt amount which can be taken in the latter period will be interrupted (Minsky, 1986). In a similar way, according to Minsky, in a period with a stable growth path of the economy, the banks will be more volunteer to lend money and they will reduce the demanded margins of safety from the customers (Minsky, 1986). As Minsky (1986) points that '' in a recovery from a severe downturn, margins are large as expectations are muted; over time, if an expansion exceeds pessimistic projections, these margins prove to be larger than necessary. Thus, margins will be reduced to the degree that projects are generally successful ''. Also, it can be expected that the banks consider the informations of the customers backgrounds whether they paid the loans just in time or not. However, Minsky (1986) points that '' the size of the margins of safety determines whether a financial structure is fragile or robust and in turn reflects the ability of units to absorb shortfalls of cash receipts without triggering a debt deflation ''. Hence, the close relationship with the investment decisions and the dynamic position according to economy of the margins of safety, it propounds the financial aspect of the investment (Minsky, 1986). In other words, investment is a financial phenomenon according to Minsky (Minsky, 1986). That's why, as it mentioned above, the financial relations are the main reason behind the evolution of capitalist crises. Also, it is composed an important building stone against the neoclassical economy with the introduction of uncertainty, risk and financing within the frame of investment. Here, this financing issue of investment adds a new argument in order to analysis of capitalist crises.
  
   The another important point of the Minsky's argument is the critique of the neoclassical approach in addition to his arguments for the relations between the price and profit and the relations of financing of investment, uncertainty and the risk. When you look at the neoclassical approach, the problems are temporary in the economy. The system will automatically come to the equilibrium. There is no need for any intervention because it interrupts the automatic adjustment mechanisms (or, the adjustment mechanism of the invisible hand). The role of the government is the protection of the market rather than to intervene it. Also, one of the most important part of this automatic adjustment mechanism is arised from rationality of people. In this point, Minsky's criticism has an important place for the neoclassical approach. According to Minsky, the rationality creates problems in the economic system (Minsky, 1986). For instance, Minsky (1986) points that '' if the economy does not conform to the general equilibrium theory, if it is endogenously unstable, and if units behave accordingly, then rational expectations will exacerbate instability ''. The system transform itself into a instable and financial fragile situation with rational units which are pursued of profits (Minsky, 1986). In other words, in that point, the financial instability appears. At that juncture, the financial instability is explained by the relations with the existence of intermediate financial institutions, pricing of capital goods and financial assets, fluctuations of their prices and the creation of profit possibilities of these fluctuations (Minsky, 1993). One of the significant point in the Minsky's hypothesis is the causation of any problems in the cash flows to the increase of the indebtedness in case of investment (Minsky, 1986). Also, according to Minsky, all economic units face with the restrictions on cash flows (Minsky, 1986). That restrictions cause to increase in indebtedness rate. On the other hand, although the indebtedness increase the growth, investment and the profit rates, it creates the upward instability (Minsky, 1986). According to Minsky (1986),          '' because of the upward instability of the investment-financing-profit interactions, from time to time, fragile financial structures emerge ''. He (1986) also mentions that '' fragile financial structures regularly break, which sharply reduces investment spending ''. Furthermore, any problems in the cash flows increase the risk ratio of the borrowers and it widens the problems to all economic units (Minsky, 1986). Hence, increase in debt ratio will stimulate the financial instability with raising the interest rate and then reducing the necessary financial resources (Minsky, 1986). So that, the investment rate will fall (Minsky, 1986). Moreover, it brings the sale of financial assets in order to find funds and it causes the fall of asset prices. The speculative revenues will reduce and therefore, the debt/asset ratio will deteriorate (Minsky, 1986). This processes can also show by Minsky's three types of finance which are hedge finance, speculative finance and ponzi finance (Minsky, 1986). Palley (2010) summarize these types finance like:

  •  In the hedge finance, borrower's expected revenues are sufficient to repay interest and loan principle.
  •  In the speculative finance, revenues only cover interest.
  • In the ponzi finance, revenues are insufficient to cover interest payments and borrowers are relying on capital gains to meet their obligations.

   In conclusion, investment and the financial relations are the key factors in the financial instability hypothesis. Also, the arguments about the prices, profits, uncertainty, risk, cash flows and the indebtedness bring new ideas to the macroeconomic field. As it can be seen in 1929 Great Depression and 2007 Financial Crisis, the financing of the investment with debts create recovery, but latter, the economy ride into deep recession as a result of the excessive debt ratio. Therefore, that point leads us to another issues which are not handled in the Minsky’s analysis. These are the absence of analysis of class struggle in shaping of capitalist relations and the insufficient explanation of the reasons of people's indebtedness.

   In my opinion, in addition to the important arguments for the economic literature in the process of the post-1980 financialization era, the hypothesis can be criticized within the frame of the solution to crises. First of all, Minsky’s basic priority for the provision of crises is the tight financial regulation process. In other words, he points that financial regulation or the tight control system is the basic indicator for the stability of the economic system (Minsky, 1986). However, what is the validity of that policies as part of class struggle? Hence, I think that the Minsky’s hypothesis and the solutions aimed at the crises can be discussed as critically within the frame of class struggle.  As it mentioned above that Minsky's hypothesis is the causation of any problems in the cash flows to the increase of the indebtedness in case of investment (Minsky, 1986). Also, according to Minsky, all economic units face with the restrictions on cash flows (Minsky, 1986). That restrictions cause to increase in indebtedness rate (Minsky, 1986). In other words, the indebtedness problem mainly depends on that restrictions. However, if the main aim of the capitalism is to maximize profits, the basic way to achieve it depending on the reducing of the costs. The labor costs, thus, has the highest rate as a percentage relative to other costs. That's why, capitalists try to repress the wage ratios. Moreover, the problems in the accumulation process of capital and the reduces in the profit rates cause structural changings within the capitalist system. Hence, beginning with the 1973 crisis, the financialization and the neoliberal process are examples to that situation. That's why, I think that the way that going to the financial instability process is the class struggle in capitalist mode of production. Therefore, even though the economic process has a strong control mechanism or regulation system, it will produce policies in order to repress the costs. However, actually, Minsky did not ignore the problem of capital accumulation. According to Minsky, the capital accumulation is one of the most important economic problem and many issues are closely related with the capital accumulation as part of an explanation of economic crises (Minsky, 1992b).  In addition to the roles of producers and financial intermediaries, there are also households, international units and government in the monetary flows in an economy. The relations between these units decide the capital accumulation and the performance of the system. The dynamic relations which provides the capital accumulation are also the main sources of the fragility and the instability (Minsky, 1992b). So, at this point, why did Minsky analyze the capital accumulation process just within the frame of monetary flows? I think that it is an important question. Hence, this question brings me to the class struggle issue. For example, apart from the financial relations, there is a deficiency due to not considering the capital accumulation process in the real economy. At that juncture, according to Minsky, instability causes from the deterioration of the debt-income relations (Minsky, 1995). However, he did not explain why people indebted. I think that it is more than restrictions on the cash flows. For instance, the repression on the wages could not find in the Minsky's arguments.

   Secondly, the other supportive argument comes from the structural Keynesianism. One of the most important characteristic of that approach is to handle the income distribution effect upon the aggregate demand within the frame of the class struggle. In this point, the Palley's arguments gives a detailed informations. In a sense, it provides the development of Minsky's hypothesis. According to Palley (2010), structural Keynesianism offers a synthesis of these points of view:

  1. It shares the generic Marxian point of view that there is an underlying real economy problem regarding wage squeeze and deterioration of income distribution, which ultimately gives rise to a Keynesian aggregate demand problem.

  1. It recognizes that finance played a critical role in sustaining the neoliberal regime by fueling asset price inflation and borrowing, which filled the demand gap created by the wage squeeze. That recognition opens the way for incorporating Minsky's financial instability hypothesis with financial excess being the way that neoliberalism staved off its stagnationist tendency. This in turn, explains why the crisis took the form of a financial crisis when it eventually arrived (Palley, 2010).
The Roles of Money, Credit and Financial Intermediation in Marx's Crisis Theory

   Generally, in the Marxian crisis theories, the arguments are based on the problems in the real economy. In other words, the roots of the capitalist crises are analyzed depending on the problems in the real economy. That's why, in the Marxian crisis theories, there are deficiencies about the explanation for the financial crises. Of course, there are strong arguments about the process of finance, the analyses are focused on the real sector. Also, the analysis of money and the credit system is tried to conducted on the real economy. At this point, James Crotty's arguments have an important points in order to fill the gap in the financial theory of the Marxian approach. His work was conducted in attempt to show the importance of money, credit and financial intermediation for the analysis of Marxian accumulation and the crises theories. As Crotty (1985) mentions that '' our major objective is to demonstrate that the neglect of money and finance in the Marxian literature is inconsistent with Marx's own emphasis on these aspects of accumulation and crisis and to show that the de facto dismissal of the centrality of money and finance in much of this literature is based on a basic misunderstanding of Marx's analytical methodology ''.

   As it mentioned above, the main aim of Crotty is an analysis of the monetary and the financial phenomenon in addition to circulation and the production in the Marxian crisis theories. According to Crotty, when Marx conducted his arguments of simple commodity production (C-M-C) to commodity exchange economy (M-C-M'), he also created a monetary theory in the part of explanations for the functions of money in the capitalist system (Crotty, 1985). As Crotty (1985) mentions that '' before Marx even begins his analysis of specifically capitalist production relations he has established that the theory of money and credit and the theory of crisis are so intimately interwined that they are analytically inseperable ''. Also, Crotty presents the reasons of not having a constituted financial theory of the Marxian approach by criticizing Marx and the latter Marxists depended mostly on the real economy in order to analyze the capitalist crises (Crotty, 1985). As Crotty (1985) points that '' the fundamental reason that the traditional crisis theory literature incorrectly relegates monetary and financial aspects of crisis theory to such an inferior analytical status is its failure to appreciate the theoretical significance of Marx's analysis of the crisis potential of commodity exchange ''. For Crotty (1985), the important points are established at the highest level of abstraction in the analysis of simple commodity production (SCP) and in the 4th and 5th part of the Capital Volume 3. Therefore he is conducted his theory based on these points. Crotty (1985) points also that '' the Marx's criticism of the school of thoughts that see all crisis as imposed by ''irresponsible'' financial activity on an otherwise crisis-free capitalism have been frequently misinterpreted as an argument that the financial system is an unimportant aspect of his crisis   theory ''. In other words, emphasizing on the financial system means the correction of the misunderstanding in the Marxian crisis theories. At this point, it is began with the Marx's theory of crisis potential of simple commodity production (SCP). Crotty points that the concept of an abstract form of crisis in the theory of monetary and financial behavior is played an important role within the SCP (Crotty, 1985). As Crotty (1985) mentions that '' the term form refers to an economic model, in this case a model of simple commodity circulation. The adjective abstract indicates that the models to be considered are quite simple, incorporate little or no institutional detail, and, most important, abstract as much as possible from reference to specific relations of production... They are forms or models of crisis because Marx used them to demonstrate that a commodity exchange economy is crisis prone or has crisis potential independently of its specific production ''. Moreover, Crotty states on 5 different money function as an abstract forms of crisis which are placed in the SCP: money as a measure of value (MMV), money as a means of circulation (MMC), money as a means of hoard (MH), money as a means of payment (MMP) and money as a means of international payments settlement (Crotty, 1985). The MMC and the MMP has an important role at the center of crises. In this point, after the criticism of Say's Law based on MMC, the more advanced functions of money as MMP transfom the economy into more fragile by making it crisis-prone (Crotty, 1985).

   So that, we begin with the MMV. Marx makes a difference between the barter economy (C-C) and the SCP (C-M-C). The main factor is the inclusion of money (M) into the circulation. With an explanation of Crotty (1985) '' SCP is qualitatively different from barter in that it separates the acts of purchase and sale in time and space and inevitably draws vast numbers of producers into a complex, interlocked, interdependent system of social relations of production and exchange ''. Here, the most important point is the invalidation of Say's Law. According to Crotty (1985), '' the fundamental distinction between Marx's analysis of the dynamics of advanced commodity exchange and the childish babble of a Say or, one might add, of Walras or a Friedman, is precisely the distinction between a monetary economy and a barter ''. As it mentioned above, inclusion of the money into circulation means the end of process of barter economy. Moreover, the time factor is incurred to the process (Crotty, 1985). In case of the inclusion of money into economic process causes also inclusion of two monetary concepts into the Marxian approach which are money as an asset and velocity of money (Crotty, 1985). In this point, that situation can be seen in the example of overproduction theory. As Crotty (1985) states that '' the idea that velocity can slow down is intimately related to Marx's assertion that there can be a general excess supply of commodities – a crisis of reproduction – in SCP ''. In other words, people can want to hold cash money due to any reason. At the end, it causes the excess supply of commodities. In addition to this, the another characteristic of the money is the measure of value in SCP (Crotty, 1985). By MMV, Marx refers to the estimate of the value of a commodity made by its owner or by others prior to its actual sale (Crotty, 1985). Also, MMV measures the expectations of commodity owners as to the value they will receive in the market with the system of commodity exchange (Crotty, 1985). The difference in time between MMC and MMV causes the development of crises (Crotty, 1985). However, according to Marx, unless money uses as a means of payments, it can not be emphasize of any crisis theory in the SCP. As Crotty (1985) states that '' it is only with contracts, credit and financial intermediation and with time-consuming interdependent production and circulation process involving long-lived capital goods that the potential differences between the price expectations that guide decisions to produce and prices actually prevailing at the time of sale take on  a key, and often a dominating role in crisis theory ''. Here, it can be seen the transition from SCP to commodity exchange economy (CEE). According to Crotty (1985) '' theorizing MMP in SCP constitutes a qualitative increase in the analytical power of the framework as a form within which to build a concrete theory of capitalist crisis. And it is with the SCP-through-MMP abstract form of crisis that Marx introduces contracts, and commercial credit and paves the way for the introduction of financial intermediation into his theory of crisis ''. The inclusion of MMP into the model prepares the basis of financial crises with an increase of fragility in reproduction causing the change in time (Crotty, 1985). According to Marx, the development of circulation evolves with the contracts (Crotty, 1985). As Crotty (1985) mentions that '' the first type of contract  discussed by Marx is one made to reduce the uncertainty involved in obtaining a given commodity at a given time at a given price ''. Furthermore, in the form of MMC, the commodities are sold due to use-value but in MMP form, it changes in order to accumulation (Crotty, 1985). Also, for Crotty (1985), '' the addition of the function MMP to the SCP form extends the separation in time between pruchase and final sale involved in commodity circulation and makes the process more complex: instead of two separate acts required to complete circulation – C-M and M-C- we now have three -C-D; D-M and M-D, where D stands for a debt contract ''. Also Crotty (1985) continues that '' according to Marx that the necessity to sell, the forced sale of commodities by the indebted commodity owner creates that aspects of an industrial and commercial crisis... known as the monetary crisis and lays the foundations for the conceptualization of the financial crises ''.

   Besides, on the contrary to the MMV and MMC within the frame of existence of money, MMP is unpredictable in order to exactly know the crisis in SCP (Crotty, 1985). Crotty (1985) mentions that '' since purchase and sale, supply and demand are independent, no agent can be sure that the labor embodied in his commodities will be exchangeable for an equal amount of the socially necessary labor time of others ''. Moreover, Crotty (1985) continues that '' the agents in the first abstract form of SCP, in other words, are subject to the anarchy of an economy not under their control. Therefore, they are vulnerable to the threat of unforeseeable, unavoidable capital losses caused by an unequal exchange of labor-time as prices fluctuate between production plan and sale ''. However, Crotty points on the change of first abstract form of money in the contract economy.  Then, these contracts and credits produces a fragility in the reproduction process which makes the system more crisis-prone (Crotty, 1985). On contrary, it is not possible to arise of any large-scaled fragilities and the crises in the MMV and MMC (Crotty, 1985). In other words, the incorporation of MMP to SCP increases the potential of crisis. Finally, Crotty (1985) mentions that '' two central elements are involved in Marx's stress on the significance of MMP...First, agents undertake contractual commitments at one point in time to exchange money (or commodity) at a specific time in the future. These contracts are based on estimates or expectations of the prices and values that will prevail at the relevamt future date...Second, the contract economy develops not just isolated reciprocal future commitments between pairs of agents, but a complex interdependent system of interlocked commitments drawing most agents into its web ''.

   In conclusion, Crotty presents 4 different phases according to their arguments at the stage from SCP to capitalism. First, because the modern capitalism is a commodity exchange mode of production, the analysis of the crisis potential to simple commodity production must be incorporated and transformed into crisis theory (Crotty, 1985). On the other hand, because capitalist mode of production is indicated the highest stage of the production style, the complete model of SCP is applicable to advanced capitalism's law of motion (Crotty, 1985). Also, this point is the changing and developing point of the production relations. As Crotty (1985) mentions that '' until we have theorized the production relations of a particular mode of production and integrated this theory with the SCP model, we can not develop an adequate analysis of its laws of motion ''. Secondly, Crotty (1985) points that '' the development of capitalist social relations proceeded historically alongside the evolution of the contract-credit system in a symbiotic relation with it. Thus, although the abstract form of SCP including MMP belongs to Marx's theory of commodity exchange, it is capitalism that deepened, widened and intensified contract-credit system ''. At that juncture, it indicates the development path of financial intermediation and financial structure of capitalist mode of production (Crooty, 1985). Thirdly, the key factor behind the dynamics of accumulation and crisis in capitalism is the rate of profit (Crotty, 1985). Although there are many possibilities within the frame of the analysis of that factor, Crotty (1985) states that '' the important point is that accumulation, which requires some historically specific minimum rate of profit to sustain itself, eventually causes the rate of profit to decline, this destroying its most important condition of existence ''. This point provides to the development of the unified theory of the capitalism together with the increase in accumulation and decrease in profit rates (Crotty, 1985). However, the main problem according to Crotty (1985) is '' the failure to comprehend the existence and significance of the theoretical articulation of the laws and tendencies of the rate of profit deduced from the sphere of production with Marx's analysis of monetary and financial phenomenon''.  Finally, Crotty emphasizes on the unity of circulation and production compatible to the integration of these tendencies or laws of capitalist production relations  into the analysis of abstract crisis forms to construct a unified theory of the capitalist reproduction process (Crotty, 1985). Hence, Crotty (1985) states that '' a complete integration of the spheres of circulation and production in the theory of accumulation and crisis would have to consider all four effects of the contract-credit system: (1) the overextension of the expansion, (2) the increasing vulnerability of the expansion to adverse financial or nonfinancial developments, (3) the codetermination of the timing of the crisis and (4) the deeping and widening of the contradiction ''.

The Marxian Approach and Its Basic Characteristics

   One of the basic approach is the Marxian approach which takes the capitalism as a whole and criticize it. The main reason that makes this approach important is depended on the analysis of dynamics of capitalism within the concept of historical process. So that, in this title, I will point on the characteristics of the Marxian approach which are also differed from the Keynes and Minsky. First, I will mention about the Marx's method and his economics. Second, I will try to explain labor-value theory, surplus-value and the sources of the exchange.
  
   Primarily, one of the most crucial idea of the Marxian approach is composed with the presenting the social transformation in the historical context. Marx thought that the societies were separated depending on their organizations of the mode of production (Fine and Saad-Filho, 2004). Also, the mode of productions were shaped on the base of the class relations. That's why, all these social concepts should have been defined led by that class relations (Fine and Saad-Filho, 2004). Moreover, there was an important role of the relations between theory and time in the analysis of the societies. In other words, Marx embraced materialist concept rather than the idealist concept in the societal developments (Fine and Saad-Filho, 2004). In addition to this materialist concept, Marx possessed a dialectical approach due to the ever-developing process of societies under the class struggles of mode of production (Fine and Saad-Filho, 2004). Therefore, Marx determined the basic characteristics and contradictions of the capitalist mode of production within the frame of the dialectical materialism and he also analyzed the sources of the historical developments and its dynamic according to this approach. In other words, the mode of productions, social relations and historical developments are analyzed under the dialectical materialism approach. Hence, this kind of analysis is constituted the first main property of the Marxian approach.

   Secondly, the Marxian labor-value theory is the other important characteristics. Actually, the ideas of Ricardo has crucial importance in the Marxian labor-value theory. However, Marx constituted its own theory different from the Ricardo (Fine and Saad-Filho, 2004). According to Marx, it is not sufficient to base the sources of value just to labor-time like Ricardo. The main reason is to have the advanced commodity production system and the exchange-value and the use-value should be examined very detailed under this commodity production (Fine and Saad-Filho, 2004). In other words, Marx differed the exchange-value and the use-value within the commodity (Fine and Saad-Filho, 2004). Every commodity has use-value and the exchange-value is the indicator of equivalence value between the commodities. In other words, the use-value provides comparison between commodities. At this point, the relations among the labor and the value become clear. However, what is the main factor behind the comparison?  Briefly, it is labor which produces use-value in the production process. In other words, the main characteristics of all commodities are to be a labor products (Fine and Saad-Filho, 2004). Of course, in the analysis of the capitalist relations, the money should be add to this concept. However, I will not mentions on that. So, this brief explanations about the labor and value is the second break point from the Keynes and Minsky. For instance, the labor is the building stone for the capitalist mode of production according to Marxian approach, however, for Keynes and Minsky, labor is a production factor.

   Thirdly, another important difference of Marx from Keynes and Minsky is shaped in the explanations of the production process. Rather than the simple commodity production (C-M-C), in the advanced capitalism there is a different production style (M-C-M') (Fine and Saad-Filho, 2004). Marx pointed that the capital has an expansive characteristic because of the profit motive Fine and Saad-Filho, 2004). The production process can be depicted as

M – C (MoP and LP)...P...M'

   Capitalists pay money-capital (M) in order to purchase the commodity inputs (C) which are means of production (MoP) and the labor power (LP) (Fine and Saad-Filho, 2004). The sources of this money-capital can be acquired by borrowing or internal funds. These inputs creates the productive capital (Fine and Saad-Filho, 2004). Production proceeds by working of these inputs. The result is the different than M. In the phase of production (P), there will be created more surplus value. That why, at the end of exchange, M' will be exceeded the M. The difference constitutes the surplus value. However, M' is also constituted the sources of profits. However, capitalists should reduce the costs from that M' in order to reach the net profit. The factors can be the payments of an interest or dividends (or some sort of financial payments), taxes, reinvestment costs, advertisement costs, non-productive costs and also bribes. On the other hand, the part of P...M' shows the point of the capitalist crises. Any problems in the transition process from P-M' can lead to capitalism into crises (Fine and Saad-Filho, 2004). The problems can be figured as insufficient demand, excess supply or the disproportionately of capital. This point leads us to the analysis of surplus value and  the concept of exploitation.

   As it mentioned above, class struggle has an important role in the Marxian approach. The capitalist class tries to repress the labor class in the production process. That's why, there is a continuous struggle between capitalists and labors. The main aim behind that repression depends on  the creation of the surplus value. There are two types of surplus value which are absolute surplus value and the relative surplus value (Fine and Saad-Filho, 2004). First of all, in the basis of the increase in absolute surplus value, it is found increases of working time without increases in the wages (Fine and Saad-Filho, 2004). Furthermore, the consolidation of the production and the increase in commodity production can also increase the absolute surplus value (Fine and Saad-Filho, 2004). Finally, with a constant working time, increases of the productivity can also provide increases in absolute surplus value (Fine and Saad-Filho, 2004). Secondly, by way of decreases in the value of labor power with the improvements of the commodity productions the relative surplus value can be increased (Fine and Saad-Filho, 2004). For example, work day can be remain same, however, the surplus value can be increased by way of reducing the payments of labor power ratio in the actual work day. Because surplus value represents the exploitation rate, increase in these two kinds of surplus value also means the increases in the exploitation rate.

Creative Destruction and the Rate of Increase of Total Output: Schumpeterian Approach

   Finally, I will handle the arguments of Schumpeter whose ideas have a significant role in the economic literature. I will focus on his famous book which is Capitalism, Socialism and Democracy. The issue about the industrial development of capitalist society was placed at the center of Schumpeter's ideas. He was concerned on the dynamic development model rather than static development model. In that point, according to Schumpeter, development was the transition from old equilibrium point to the new equilibrium point where the production and industrial relations developed (Schumpeter, 1942). So, one of his crucial factor so as to achieve that point was entrepreneurship and entrepreneurs (Schumpeter, 1942). The main aim of an entrepreneur was to impel of the inactive entrepreneurship by creating innovations (Schumpeter, 1942). In other words, it indicates the transition from static to dynamic position by that innovations. He also discussed that these innovations within his theory of  '' Creative Destruction '' (Schumpeter, 1942). Depending to these brief explanations, I will point on two important issues of Schumpeter which are the rate of increase of total output and the theory of creative destruction.

   Primarily, I begin with an explanation with the rate of increase of total output. According to Schumpeter, first criteria about the economic realization was the total production (Schumpeter, 1942). However, he found that the calculations of the changing as problematic for the amount of produced goods (Schumpeter, 1942). Therefore, Schumpeter (1942) pointed about that '' for not only the material and the technique of constructing such an index, but very concept of a total output of different commodities produced in ever-changing proportions, is a highly doubtful matter ''. In my opinion, he has an approach which is not compatible with the Marxian crisis theories such as under-consumption. According to Schumpeter, it did not exist any historical development as Marx stated that wealthier people would become more wealthier and poorer people would become more poorer (Schumpeter, 1942). In other words, it did not exist any change in the income pyramid (Schumpeter, 1942). Also, the wages and the other income types did not change (Schumpeter, 1942). Moreover, he stated that the poorest part of the population would have been flourished with the renewal of capitalism towards the 50 years from 1928 to 1978 in the lights of his calculations of the rate of increase of total output and of the general statistics (Schumpeter, 1942). However, in my opinion, it contrast with the Marxian historical development theories of capitalism. In short, there is no such a meaningful insights within the frame of profit motive and the surplus-value theory. As a comparison, there will be a critique of Schumpeter's rate of increase of total output towards the issues between 1980 – 2007 within the income distribution concept. On the other hand, he also focused on the sociologic data which were specified the increases and decreases of economic activities as a part of analysis about the capitalist development process. In that point, the revolutions were an important indicator. According to Schumpeter (1942) '' these revolutions periodically reshape the existing structure of industry by introducing new methods of production, new sources of supply, new trade routes and markets to sell in and so on. This process of industrial change provides the ground swell that gives the general tone of business: while these things are being initiated we have brisk expenditure and predominantly '' prosperity '' and while those things are being completed and their results pour forth we have elimination of antiquated elements of the industrial structure and predominantly '' depression ''. Furthermore, we can see that he often related the consumption increases and the increase of the welfare. According to Schumpeter, in all periods, we encounters of an increase in consumption (Schumpeter, 1942). There is a factor which increases the wages (Schumpeter, 1942). In that matter, capitalist mechanism plays a strengthing role for the welfare of masses (Schumpeter, 1942). In other words, the development in the production increases specify the capitalist progress. At last, Schumpeter stated that the unemployment was a tragedy in all situations (Schumpeter, 1942). Removal of an unemployment would be the most important characteristic of socialism (Schumpeter, 1942). As Schumpeter (1942) mentioned that '' the real tragedy is not unemployment per se, but unemployment plus the impossibility of providing adequately for the unemployed without impairing the conditions of further economic development ''. However, in my opinion, if we take this issue from the Marxian point of view, capitalism does not need any support to the unemployment in some situations. The reason is the necessity of the repression of the wages. Also, that is conditioned the creation of the '' Reserve Army of Labor ''.
  
   Secondly, I will mention about the creative destruction concept of Schumpeter. The Marxian surplus value theory was supported to Schumpeter's creative destruction concept. According to Schumpeter, new consumption materials, new production methods, new transportation methods, new markets and new types of industrial organizations were both the factors that provided the capitalist development (Schumpeter, 1942). Opening of new markets and foreign markets, transition from handicraft workshops to extensive factories kept to capitalism in renewal form. Also, these factors continuously were destroyed the old ones and were created new ones. As Schumpeter (1942) mentions '' this process of creative destruction is the essential fact about capitalism. It is what capitalism contains in and what every capitalist concern has got to live in ''. Within that frame of creative destruction, Schumpeter analyzed the problem of capitalist development in two ways: first, because capitalism has a long development path originating from the factors placed on the system, it should have to analyze in long-time period. Second, the analysis of the factors of the system could provide a more strong points within the organic development process of capitalism (Schumpeter, 1942). Furthermore, innovative entry by the entrepreneurs was the disruptive force that sustained economic growth within the frame of creative destruction and it caused the powerful changing in the capitalist structure (Schumpeter, 1942). In other words, he specified that these innovations undermined the capitalism's own institutional frameworks (Schumpeter, 1942). Naturally, these would have a negative effects within the frame of economic development and the crises. As Schumpeter (1942) stated that '' in breaking down the pre-capitalist framework of society, capitalism thus broke not only barriers that impeded its progress but also flying buttresses that prevented its collapse. That process, impressive in its relentless necessity, was not merely a matter of removing institutional deadwood, but of removing partners of the capitalist stratum, symbiosis with whom was an essential element of the capitalist schema...The capitalist process in much the same in which it destroyed the institutional framework of feudal society also undermines its own ''.

Conclusion

   In this article, we focused on three different approaches which were Minskian, Marxian and Schumpeterian. We first began with a short explanation about the background of the Minsky's financial instability hypothesis which based on the ideas of Marx (1976), Fisher (1933) and Stiglitz and Weiss (1981). After these explanations, we stressed on the strengths and weaknesses of Minsky's approach within the frame of the financial instability hypothesis. On the one hand, the strengths of that approach included the relations between the price and profit; financing of investment harmonizing with the uncertainty and the risk factor; and the critique of the neoclassical synthesis. On the other hand, the weaknesses included the absence of an analysis of class conflict and the insufficient explanation of the reasons of people's indebtedness. Secondly, we stressed on the Crotty's arguments about the roles of money, credit and financial intermediation in Marx's crisis theory. These arguments gained a new perspectives on the analysis of the financial crisis theory of the Marxian approach. Thirdly, we pointed the difference of Marxian approach against the Minsky and Keynes. So, we tried to explain the Marx's method and his economics, labor-value theory, surplus value theory and the source of exchange. Finally, we showed Schumpeter's ideas about the capitalist crises depending on his arguments which were the rate of increase of total output and the theory of creative destruction.




REFERENCES

1) Crotty, J. 1985. '' The Centrality of Money, Credit and Financial Intermediation in Marx's Crisis Theory: An Interpretation of Marx's Methodology ''. in S. Resnick and R. Wolff, eds.

2) Fine, B. and Saad-Filho, A. 2004. Marx's Capital. Pluto Press.

3) Fisher, I. 1933. '' The Debt-Deflation Theory of Great Depression ''. Econometrica.

4) Keynes, J.M. 1991. The General Theory of Employment, Interest and Money. New York: A Harvest Book.

5) Marx, K. 1976. Capital. Vol 1. London: Penguin.

6) Minsky, H. 1986. Stabilizing an Unstable Economy. Yale University Press.

7) Minsky, H. 1992. '' The Financial Instability Hypothesis ''. Working Paper No. 94. Jerome Levy Economics Institute.

8) Minsky, H. 1993. '' Finance and Stability ''. Working Paper No. 93. Jerome Levy Economics Institute.

9) Stiglitz, J. and Weiss, A. 1981. '' Credit Rationing in Markets with Imperfect Information ''. American Economic Review 74(3).

10) Schumpeter, J. 1942. Capitalism, Socialism and Democracy.



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