Minsky (1982; 1986) proposed a financial instability hypothesis, which emphasized that the complicated financial structure underlying the capitalist economy generates business fluctuations and cycles. Many non-neo-classical economists have developed his idea since Taylor and O'Connell (1985), who proved that an economy would fall into a financial crisis when a decline in expected profit rates aggravated the financial condition of firms and increased household preferences for liquidity. Recent works, for example, by Chiarella, Flaschel and Semmler (2001), Asada (2006; 2007), and Ninomiya and Sanyal (2009), incorporated the dynamic equation of the debt burden of firms into non-linear economic dynamic models to indicate financial conditions. On the other hand, Bernanke and Gertler (1989) proposed a financial accelerator hypothesis, which emphasized a strong affinity between assets and economic activity. Uchida (1987) and Ueda (2006) reformulated Taylor and O'Connell's idea by introducing the notion of risk aversion into the theory of portfolio selection under uncertainty and discussed financial instability. In fact, the stock of financial assets of households increased outstandingly and households preferred to invest risky assets during the bubble economy in Japan in the latter half of the 1980s. Uchida and Ueda's discussions are interesting, but their models are mainly comparative static analysis. This paper introduces Uchida and Ueda's idea into a macrodynamic model of financial instability in an oligopolistic (or short-run) economy. We construct a model by incorporating the dynamic equations of the debt burden of firms and financial assets of households and demonstrate financial instability. For example, the stock of financial assets increases when an economy is expanding. A decrease of risk aversion leads the investors to shift portfolio preferences toward bonds that are risky assets. As a result, the increase in wealth leads to a decrease in interest rate. The decrease in interest rate promotes investment demand. The dynamic system becomes unstable in this case. This paper also demonstrates that there is a closed orbit in the model by applying the Hopf bifurcation theorem.

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Many people view the outbreak of the severe financial crisis of 2007-8 as confirming Minsky's "financial instability hypothesis". Nevertheless, those who interpret this financial crisis as a "Minsky crisis" don't get a majority even among heterodox economists who believe that the capitalist growth process is inherently unstable. One of the reason is that there are still various theories of economic crisis in the strands of heterodox economics. Therefore, heterodox economists' assessments on Minsky's theory aren't also uniform. Some indicate the limitations of Minsky's perspective. For example, many Marxian economists often point out that Minsky finds the source of instability of a capitalist economy exclusively in the financial sector of the economy and he pays little attention to the contradictions and crises of capitalist economies that result from factors located in the real sector. But economic crises don't necessarily always occur by only one cause. In many case, crises occur because of the complex interaction of plural factors. Further, the form of a crisis may depend on the institutional structure of the economic system at a particular time and place. In order to grasp the nature of economic crises that occur taking various forms each time, we need a comprehensive theoretical framework that integrates perspectives of schools of heterodox economics. We will be able to construct such a framework for the first time by the animated cross-fertilization between various strands of heterodox economics. Since their advent in the late 1960s, American radical economists have done a lot of valuable attempts toward a synthesis of heterodox economics. They have inherited the intellectual capital of Marxian, Keynesian and American institutional schools, and sought to construct an alternative framework to the neoclassical orthodoxy through the integration of those ideas. In addition to the analysis of the real aspect of the economy, they have also achieved many rich results in the analysis of financial instability of a capitalist economy. This paper reviews American radical economists' critical assessments of Minsky's financial instability hypothesis, and examines their interpretations of the current crisis. With these considerations, I explore the possibility of a synthesis of heterodox theories of economic crisis.

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