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

Filippo Gusella and Anna Maria Variato

Review of Political Economy, 2025, vol. 37, issue 1, 108-141

Abstract: This article addresses the relationship between financial instability and wealth inequality in a twofold perspective. First, it is an attempt to explain why the two phenomena, despite being nowadays equally relevant as empirical concerns, do not attract equal attention from researchers and are usually studied separately or conceived as independent levers affecting cycles or growth. We suggest the adoption of implicit methodological paradigms, instead of ‘historical momentum’ as the likely reason. Secondly, we present a theoretical framework grounded on the work of Piero Ferri (Aggregate Demand, Inequality and Instability — New Directions in Modern Economics. Edward Elgar Publishing, Cheltenham, UK, 2016) with a medium-run dynamic demand-led model set for a monetary economy of production, where corporate debt is introduced into the financial account of firms. Minsky and Piketty come instrumentally to support the two perspectives: on one side they become our opposite representatives of heterodox and orthodox method; on the other side, as the model specification makes the work of Thomas Piketty (Capital in the Twenty-First Century. Cambridge University Press, Cambridge, MA, 2014, and Capital in the Twenty-First Century, Technical Appendix. Cambridge University Press, Cambridge, MA, 2014) directly comparable with the financial instability hypothesis, our exercise sheds light on the dynamic role of retention rates and capital share during the cycle phases, qualifying the conditions under which financial instability may lead to inequality. Connecting the implications of the two argumentative lines, the call emerges for a significant rethinking in macroeconomics studies.

Date: 2025
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DOI: 10.1080/09538259.2022.2117982

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