Financial Instability and Income Inequality: Why the Minsky–Piketty Connection Matters for Macroeconomics

This article addresses the relationship between financial instability\r\nand wealth inequality in a twofold perspective. First, it is an\r\nattempt to explain why the two phenomena, despite being\r\nnowadays equally relevant as empirical concerns, do not attract\r\nequal attention from researchers and are usually studied\r\nseparately or conceived as independent levers affecting cycles or\r\ngrowth. We suggest the adoption of implicit methodological\r\nparadigms, instead of ‘historical momentum’ as the likely reason.\r\nSecondly, we present a theoretical framework grounded on the\r\nwork of Piero Ferri (Aggregate Demand, Inequality and Instability\r\n— New Directions in Modern Economics. Edward Elgar Publishing,\r\nCheltenham, UK, 2016) with a medium-run dynamic demand-led\r\nmodel set for a monetary economy of production, where\r\ncorporate debt is introduced into the financial account of firms.\r\nMinsky and Piketty come instrumentally to support the two\r\nperspectives: on one side they become our opposite\r\nrepresentatives of heterodox and orthodox method; on the other\r\nside, as the model specification makes the work of Thomas\r\nPiketty (Capital in the Twenty-First Century. Cambridge University\r\nPress, Cambridge, MA, 2014, and Capital in the Twenty-First\r\nCentury, Technical Appendix. Cambridge University Press,\r\nCambridge, MA, 2014) directly comparable with the financial\r\ninstability hypothesis, our exercise sheds light on the dynamic\r\nrole of retention rates and capital share during the cycle phases,\r\nqualifying the conditions under which financial instability may\r\nlead to inequality. Connecting the implications of the two\r\nargumentative lines, the call emerges for a significant rethinking\r\nin macroeconomics studies.