Systemic financial fragility and the monetary circuit: a stock-flow consistent Minskian approach

In the last few years, a number of scholars has referred to the crop of contributions of Hyman P. Minsky as „required reading‟ for understanding the tendency of capitalist economies to fall into recurring crises. However, the so-called „financial instability hypothesis‟ of Minsky relies on muchdisputed assumptions. Moreover, Minsky‟s analysis of capitalism must be updated on the basis of the deep changes which, during the last three decades, have concerned the world economy. In order to overcome these theoretical difficulties, the paper supplies a simplified, but consistent, re-formulation of some of the most disputed aspects of Minsky‟s theory by cross-breeding it with inputs from the current Post-Keynesian literature. This allows us to analyze (within a simplified stock-flow consistent monetary circuit-model) the impact of both „capital-asset inflation‟ and consumer credit on the financial „soundness‟ of a monetary economy of production.