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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 7: Market Constraints Upon Firms: Vulnerability

Hyman P. Minsky


7. Market constraints upon firms: vulnerability In this chapter we wish to take up the effect of alternative market structures upon the behavior of firms. Our aim is to develop a theory of the behavior of the firm which enables us to determine whether or not the amount of investment induced by changes in either cost or demand conditions depends upon alternative market conditions. Our problem is how these market structures affect the value of the accelerator coefficient. For our purposes market structures can be divided into three classes: competition, monopoly and the region in between, which is generally called oligopoly. In addition to the demand curves confronting a firm or an industry, we have available the modified cost curves (the iso-profit curves) which were derived in Chapters 5 and 6. This apparatus enables us to use cost curves in a more meaningful and systematic manner than they have been used to date in the study of investment behavior. The aim of this chapter is to prepare the ground for an investigation of the relation between these alternative market structures and the effects of shifts in product demand curves upon investment activity. We are not particularly interested in problems such as the relation between the price of products and the quantities produced under these alternative market structures, nor are we concerned with the question as to whether or not the equilibrium conditions derived for these alternative market structures closely approximate or are widely divergent...

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