Table of Contents

Keynes and Macroeconomics After 70 Years

Keynes and Macroeconomics After 70 Years

Critical Assessments of The General Theory

Edited by L. Randall Wray and Matthew Forstater

In this substantial new collection, esteemed Post-Keynesian scholars reassess the relevance of Keynes’s The General Theory to a broad array of topic areas, ranging from the environment, investment finance, exchange rates, and socialism, as well as inquiries into general Post-Keynesian theory.

Chapter 13: Investment Finance and Financial Sector Development

Bokhyun Cho

Subjects: economics and finance, post-keynesian economics

Extract

13. Investment finance and financial sector development Bokhyun Cho* INTRODUCTION Keynes emphasized that the amount of real investment is the most important factor for determining the level of and the change in output and employment, and investment decision making and finance is mainly influenced by the activities in the financial sector. Although Keynes’s argument sometimes involved debates, the arguments have been strengthened and developed by Post Keynesian economists. Post Keynesians, following Keynes, argue that the expectation formation and liquidity preference under uncertainty in the financial sector have an important influence on the investment finance and investment decision making in the real sector. Banks control the amount and terms of money supply required for investment according to their liquidity preference. Financial markets influence the level of and the change in investment through their daily revaluation of investment project’s prospective yield. Post Keynesians, however, hardly discussed the effects of structural development of the financial sector on the change in expectation formation and liquidity preference in the financial sector, and hence on the investment finance and investment decision making.1 A deeper investigation of the dynamics of the financial sector, therefore, is necessary in order to assess the workings of contemporary financial sector development and to search for a better financial system in line with Keynes’s principle of effective demand. This chapter aims to analyze the effects of the development of the financial sector on the changes in investment finance and investment decision making. We shall argue that...

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