The Financial Instability Hypothesis, developed by Hyman P. Minsky, explores the empirical and theoretical aspects of financial instability in capitalist economies. The hypothesis posits that capitalist economies often exhibit episodes of inflation and debt deflation that can spiral out of control, with government interventions often proving ineffective. Minsky's theory is rooted in Keynes's "General Theory" and draws on the credit view of money and finance by Joseph Schumpeter. The hypothesis characterizes the economy as a capitalist system with expensive capital assets and a complex financial structure, where the capital development of the economy involves exchanges of present money for future money. The key economic problem is identified as the "capital development of the economy," focusing on an accumulating capitalist economy moving through real calendar time. The hypothesis identifies three types of income-debt relations: hedge, speculative, and Ponzi finance, and argues that the mix of these types can determine whether the economy is stable or unstable. Over prolonged periods of prosperity, economies tend to shift from a structure dominated by hedge finance to one with a larger weight of speculative and Ponzi finance, leading to greater financial instability. The hypothesis suggests that business cycles are not solely driven by exogenous shocks but are also shaped by the internal dynamics of the economy and the system of interventions and regulations designed to manage it.The Financial Instability Hypothesis, developed by Hyman P. Minsky, explores the empirical and theoretical aspects of financial instability in capitalist economies. The hypothesis posits that capitalist economies often exhibit episodes of inflation and debt deflation that can spiral out of control, with government interventions often proving ineffective. Minsky's theory is rooted in Keynes's "General Theory" and draws on the credit view of money and finance by Joseph Schumpeter. The hypothesis characterizes the economy as a capitalist system with expensive capital assets and a complex financial structure, where the capital development of the economy involves exchanges of present money for future money. The key economic problem is identified as the "capital development of the economy," focusing on an accumulating capitalist economy moving through real calendar time. The hypothesis identifies three types of income-debt relations: hedge, speculative, and Ponzi finance, and argues that the mix of these types can determine whether the economy is stable or unstable. Over prolonged periods of prosperity, economies tend to shift from a structure dominated by hedge finance to one with a larger weight of speculative and Ponzi finance, leading to greater financial instability. The hypothesis suggests that business cycles are not solely driven by exogenous shocks but are also shaped by the internal dynamics of the economy and the system of interventions and regulations designed to manage it.