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Induced Investment and Business Cycles

Hyman P. Minsky

Edited by Dimitri B. Papadimitriou

This unique volume presents, for the first time in publication, the original Ph.D. thesis of Hyman P. Minsky, one of the most innovative thinkers on financial markets. Dimitri B. Papadimitriou’s introduction places the thesis in a modern context, and explains its relevance today. The thesis explores the relationship between induced investment, the constraints of financing investment, market structure, and the determinants of aggregate demand and business cycle performance. Forming the basis of his subsequent development of financial Keynesianism and his ‘Wall Street’ paradigm, Hyman Minsky investigates the relevance of the accelerator-multiplier models of investment to individual firm behaviour in undertaking investment dependent on cost structure. Uncertainty, the coexistence of other market structures, and the behaviour of the monetary system are also explored.
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Chapter 5: Cost Curves and Investment

Hyman P. Minsky


The effect of a change in National Income, operating through a change in household income, is to shift some demand curves for consumption goods. The amount of induced investment (positive or negative) by business firms depends upon their reaction to the resulting shifts in the demand curves confronting them. This is true not only of the demand for investment goods by consumption goods producers but it is also true of the demand for investment goods by investment goods producers: realized induced investment depends upon the reaction of business firms to the shifts in their demand curves which are associated with a change of income. It is necessary to distinguish between autonomous and induced investment. Autonomous investment is due to the introduction of new production functions and to changes in the supply conditions of factors of production. In our approach the influences upon a business firm are separated into demand conditions and supply conditions. Therefore, autonomous investment initially is due to changes in supply conditions, whereas induced investment initially is due to changes in demand conditions. In our work we are interested in induced investment, even though the ‘autonomy’ of autonomous investment may be questioned. The immediate incentive to invest by a firm may be due to a change in the relative prices of factors of production. Such investment is induced if the change in the relative prices is due to the repercussions of a change in income whereas such investment is autonomous if changes in the relative prices...

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