Business cycle theory: Where Minsky and Hayek agreed

Abstract

Hyman Minsky’s and Friedrich Hayek’s theories on the business cycle are often regarded as fundamentally divergent even when they share certain points in common: while Minsky attributes the cause of economic fluctuations to the inherently speculative tendencies of financial markets, Hayek blames central banks for credit manipulation. This paper aims to demonstrate that the similarities between both authors are greater than generally believed and that actually some consensus exists in their writings: both authors think that the economic boom is the result of an unsustainable credit expansion and that the depression can be explained by financial or, ultimately, real constraints.