> Tell me if I'm wrong, but the thrust of this is that centralisation of
> credit permits banditry and is potentially dangerous, but it is not
> quite
> central to periodic breakdowns and crises under capitalism. For
> that you
> need Keynes & Minsky.
The essence of Keynes's explanation of a financial crisis is already in Marx. That would be the idea of the capitalist "passions" and the role in them of an irrational love of money as a possession. Marx, like Keynes, makes a reversion of money to this role the explanation of what he calls a "monetary crisis".
Also like Marx, Keynes makes the "vulgar passions" whose dominance he takes as defining capitalism - i.e. "the essential characteristic of capitalism" is "the dependence upon an intense appeal to the money- making and money-loving instincts of individuals as the main motive force of the economic machine" - "passions" in the sense of Hegel. They are instrumental to the creation of the "material abundance" that would make the transcendence of capitalist psychopathology practicable. It's for this reason that he claimed 80 or so years ago that
"For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still."
Minsky and "Keynesians", Post and otherwise, largely ignores this aspect of Keynes, just as most Marxists ignore this aspect of Marx.
Unlike Marx, Keynes provides an explanation for this ignorance. He roots it in the same psychopathology he claims dominates capitalist motivation in general.
In addition to explaining this, the psychopathology will also explain the role played in the present crisis by the "Bedlamite" ideas currently dominant in economics (i.e. by "mathematical finance", another "“extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam").
Expressed as the "efficient market hypothesis" these ideas played a key role in the development and functioning of modern financial derivative markets. In particular, the hypothesis underpins the Black Scholes Merton formula for pricing options and the "Gaussian copula function" devised by David Li to measure default correlation.
These formulae, which assume that, in Keynes's words, “the existing state of opinion as expressed in prices and the character of existing output is based on a correct summing up of future prospects, so that we can accept it as such unless and until something new and relevant comes into the picture” (XIV 114), were used by traders to determine what prices should be, this fact alone falsifying the assumption underpinning them.
The practically universal adoption of Li's "Gaussain copula function" fed the explosive growth of CDSs and CDOs including mortgage backed securities. Mathematics magically converted debts on which default was practically certain into securities rated Triple A (thus, among other things, making it profitable for those directly responsible for the mortgage lending to ignore the borrower's credit worthiness).
Ted