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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 6: The Survival of Firms

Hyman P. Minsky


6. The survival of firms The apparatus that we have constructed, a family of average cost curves for each plant and of planning curves for each production function, can be modified to take into account the survival conditions for a firm. Survival conditions are an effective constraint upon the behavior of firms. Therefore these modified cost curves can be related to investment decisions. Survival conditions have been defined as requiring that total money expenses be less than or equal to total money receipts (ignoring whatever initial liquidity the firm possesses) for every time period from the initial position to the firm’s horizon. The objective phenomenon related to the survival of a firm is its balance sheet structure. What we will do is construct cost curves which take into account the effects of the balance sheet structure of a firm upon its survival conditions. We will first operate upon the cost curves to allow for the objective costs associated with a balance sheet structure. We will then allow for the risk associated by the firm with different balance sheet structures. These modified cost curves enable us to investigate how balance sheet structures and changes in financial markets affect firm’s investment behavior. The debts of a firm reflect the conditions which existed in the relevant financial markets at the date when the debts were assumed. The survival conditions therefore are measures of the effects that financial or money market conditions have upon...

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