INFORMATION SYSTEM IS NOT WELL BEHAVED AND LINEAR My fundamental interest is ins

https://www.academia.edu/9865619/Understanding_Financial_Instability_Minsky_Versus_the_AustriansOUR INFORMATION SYSTEM IS NOT WELL BEHAVED AND LINEAR

My fundamental interest is institutions and law, but I geek-out when someone helps me better understand economics by providing a language for concepts we fail to understand sufficiently to articulate alone. (I love this paper. Maybe it just appeals to my niche interests, but it’s awesome.)

—“The conventional economic paradigm is thus not the only way economic interrelations can be modeled. Every capitalist economy can be described in terms of sets of interrelated balance sheets. At every reading of the balance sheet the financial instruments can be interpreted as generating two sets of time series: the liabilities generate payment commitments, and the assets generate expected cash receipts. Balance sheets relations link yesterdays, todays, and tomorrows: payment commitments entered in the past lead to cash payments that need to be executed now as well as future cash payments, even as liabilities are taken on now that commit future cash flows. In this structure the real and the financial dimensions of the economy are not separated: there is no so-called real economy whose behavior can be studied by abstracting from financial considerations. This system, linking yesterdays, todays, and tomorrows both financially and in terms of the demand for and supply of goods and services, is not a well-behaved linear system. Furthermore, the presumption that this system has an equilibrium cannot be sustained. This modeling of the economy leads to a process in time that generates a path that can fly off to deep depressions and open-ended inflations, even in the absence of exogenous shocks or strange displacements. In this model money is never neutral. (Minsky ibid. 78)”— Ludwig van den Hauwe