Theories of Crisis

Introduction Minsky, Marxist and Mathematics

The financial crisis in 2008 is often compared to the Great Depression and was considered the most serious recession by many economists. In our senior seminar final project, we plan to explore the theories provided by different schools of economists such as Marxist and Minsky. Following the theories, we will also examine the empirical evidence from the Great Depression and the recession in the 70s as well as the current financial crisis. The Marxists think recessions are imbedded in the capitalism system and business cycles are the direct result of profit maximizing actions in the market. Carl Marx developed the major theory of business cycle, which draws heavily from J.S. Mill. As a post Keynesian economist, Minsky explained the fragility of the financial system is a feature of a Capitalist system. In particular, an integrated international financial market only increases the instability of individual economy. In addition to the theories presented by Marxist and Minksy, we also plan to explore the mathematical approach to the global financial crisis by examining methods and theoretical models (coordination games, herding and learning models) that are largely derived from major international economic theories such as Obstfeld’s Model of the Financial Crisis.

Section IV