Steve Keen: A Computer Simulation of Monetary Dynamics
The financial crisis that ran from 2007 to 2009 has been called a
"Minsky Moment," meaning it offered a much-needed reminder to all
economists of Hyman Minsky's neglected dictum that "capitalism is
essentially a financial system."
But even with this reminder, it
is hard to know what to do next, since it is difficult to express
Minsky's vision using the standard equilibrium methods of economics.
Arguably that is one reason that Minsky has remained a minority taste in
economics.
Steve Keen, a grantee of the Institute for New
Economic Thinking, wants to change all that by developing a computer
simulation tool that captures the monetary side of the economy in a
realistic way, including its non-linear dynamic development over time.
When Keen is done, students of economics will be able to build their
intuition by simulating money flows through the banking system. And
professional economists will be able to explore complex interactions
without imposing limits of tractability, simply by tweaking the model
and seeing what happens.
Keen gives credit to Augusto Graziani's
writings on the monetary circuit for showing him how to translate the
complex workings of the monetary economy into something that can be
programmed to run on a computer. He met Graziani in 1998, the same year
he finished his Ph.D., and has been following the money circuit ever
since, first in his own work and now by developing tools for the rest of
us. Sometimes new tools are what we need to create new thinking.
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