LECTURE 7 | Minsky and Money Manager Capitalism | Prof L. Randall Wray

LECTURE 7 – THE RISE OF MONEY MANAGER CAPITALISM AND THE GLOBAL FINANCIAL CRISES (Institute of Economics, Campinas, Unicamp, August 165h, 2018)

In this lecture, the last one of the Modern Money Theory Course, Professor L. Randall Wray discusses the main characteristics of contemporary Money Manager Capitalism and the road that lead to the 2008 financial crisis. He also analyses the Euro Crisis from the perspective of Modern Money Theory, stating that the main problem is that member states abandoned sovereign currency. At the end of the lecture some policy options are assessed.

How did capitalism evolve from an industrial production system into one dominated by financial asset management? Why did Hyman Minsky identify this new phase — “Money Manager Capitalism” — as inherently unstable and crisis-prone?

This is the seventh lecture in the minicourse “An Introduction to Modern Money Theory”, presented by Professor L. Randall Wray. The session deepens Minsky’s Financial Instability Hypothesis, applying it not only to investment cycles but to the long-term evolution of capitalism itself. Wray argues that recent crises, including 2008, cannot be explained by Minsky’s early model focused on productive investment [06:52], but rather by his later analysis of financialization [07:53].

The lecture outlines Minsky’s evolutionary stages of capitalism:

Earlier Phases:
The course revisits Commercial Capitalism (commercial banks financing trade), Financial Capitalism (investment banks funding major industrial ventures such as railroads) [07:01], and Paternalistic Managerial Capitalism (the postwar era of stability supported by “Big Government” and “Big Bank”) [10:05].

“Money Manager Capitalism”:
Emerging in the 1980s, this phase becomes the lecture’s central focus. It is defined by the dominance of professional money managers [10:00] — pension funds, mutual funds, and other institutional investors — overseeing vast sums of financial wealth. The system’s priority shifts from expanding productive capacity to maximizing returns on existing financial assets.

Mechanisms of Instability:
Money Manager Capitalism generates fragility through several interconnected mechanisms:

Innovation and Risk: Fierce competition to “beat the market average” drives fund managers toward risk-taking [16:42], as risk itself becomes viewed as the source of profit.

Securitization and Globalization: Minsky identified securitization — turning loans into tradable securities [10:53] — as the process that enabled capital globalization. It detached loan originators from ultimate risk, eroding the morality of prudent banking [01:55:06].

Shadow Banking: The rise of unregulated financial intermediaries [19:41] created a leveraged, interconnected system beyond the reach of traditional regulators.

Debt and Asset Bubbles: The system fueled asset booms — housing [27:10], commodities [25:25] — while wages stagnated, forcing households into debt to sustain living standards [15:47].

Wray concludes that the 2008 crisis was not an accident or a “black swan,” but a Minsky moment [00:53] — the logical outcome of decades of apparent stability that bred complacency, financial innovation, and a self-reinforcing system centered on speculation. The audience gains an understanding of how financialization transformed capitalism, making systemic instability a defining feature of the modern economy.

00:00:16 Introduction: Lecture 7 – “Money Manager Capitalism”
00:02:40 Recent Crises (Post-1980) and Minsky’s Model
00:07:37 Minsky’s Phases in the Evolution of Capitalism
00:10:00 The Rise of “Money Managers” (Pension and Mutual Funds)
00:13:39 “Stability Is Destabilizing”: The Road to Crisis
00:16:32 Fund Managers’ Competition and the Pursuit of Risk
00:19:24 The Role of “Shadow Banking”
00:24:45 The Commodities Boom and the Role of Pension Funds
00:35:48 Bernanke’s “Great Moderation” and the Road to Collapse
00:39:40 The 2008 Meltdown: Securitization, Debt, and Fraud

#mmt #economy #economics #fiscalpolicy #monetarypolicy #hymanminsky #financialization #capitalism

References:

Minsky, H. Uncertainty and the Institutional Structure of Capitalist Economies. Working Paper,
n. 155. Levy Economics Institute, 1996.
Wray, L. Global Financial Crisis: a Minskyan interpretation of the causes, the Fed’s bailout,
and the future. Working Paper, n. 711. Levy Economics Institute. March, 2012.

Lecture slides: https://goo.gl/Uq7mso

Images: Alexandre Motta