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PRIVATE SECTOR ASSET MANAGEMENT AND THE EFFECTIVENESS OF MONETARY POLICY: THEORY AND PRACTICE
Author(s) -
Minsky Hyman P.
Publication year - 1969
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1969.tb01676.x
Subject(s) - townsend , rowan , asset (computer security) , session (web analytics) , constructive , citation impact , citation , economics , management , library science , business , computer science , ecology , physics , computer security , process (computing) , quantum mechanics , advertising , biology , operating system
THE CONTROVERSY about how money affects the economy is deeper and more fundamental than is evident in the current literature. From the current literature it seems as if the dispute is over either the definition of money and the specifications of the variables in a demand function for money or whether stable monetary growth is a) capable of being defined, b) obtainable, and c) superior, as a stabilization technique, to active discretionary monetary and fiscal policies.' In truth the above are peripheral or secondary issues. The fundamental issue in monetary theory is whether a capitalist economy is inherently stable or whether, due to its very nature, it is unavoidably unstable; that is whether unsustainable booms and deep depressions are due to essential characteristics of capitalism. Financial crises, domestic and international, have been associated with capitalism throughout its history. This does not prove that they are inherent in capitalism-the crises of history may have been due to a combination of ignorance, human error and avoidable attributes of the financial system. One polar view in the stability of capitalism is represented by the Chicago School. An article of faith, nowhere better stated than in Henry Simons' famous article "Rules Versus Authorities. . ." [22], is that serious depressions are due to man-made imperfections in the financial system. Friedman and Schwartz argue that "The monetary collapse [of the 1930's] was not the inescapable consequence of other forces, but rather a largely independent factor which exerted a powerful influence of the course of events. The failure of the Federal Reserve System to prevent the collapse reflected not the impotence of monetary policy but rather the particular policies followed by the monetary authorities and, in smaller degree, the particular monetary arrangements in existence [10, p. 4]. In this "Chicago" view there exists a financial system, different from that which ruled at the time of crisis but nonetheless consistent with capitalism, which would make serious financial disturbances impossible. It is the task of monetary analysis to design such a financial system, and of monetary policy to execute the design. In Simons' view this depression-proof good financial society required a radical restructuring of the financial system. In Friedman's view the establishment of the good financial society requires only the adoption of a stable money growth rule by the Federal Reserve System, given that the