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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 10: Conclusion: Business Cycle Theory and Economic Policy

Hyman P. Minsky


It has been shown that both linear and non-linear accelerator models, standing by themselves, are not sufficient for business cycle analysis. However, it was assumed that such flow of income models can be used as a core, a skeleton structure, for cycle theory. This use of accelerator models focuses attention upon the determinants of the parameters of the models, and it is shown that the parameters of these models depend upon the behavior of elementary economic units. Accepting the work that has been done on the relation between households and the propensity to consume, the relation between individual firm behavior and the accelerator coefficient has been investigated. In particular, the relationships between induced investment and financial constraints and market structures have been studied. It cannot be claimed that the findings are definitive; in fact, the major purpose of setting out on this track was to test the plausibility of the approach. In addition, the tool of analysis selected, a modification of Marshallian price theory, may be too weak and the factual basis for the transformation of the findings into a value of the accelerator coefficient is lacking. Certainly the economic theory of the investment behavior of individual firms and the testing of the theory of the investment are among the major problems in economics. Nevertheless, some results, which may be viewed as the most tentative of hypotheses, have been obtained. It has been shown that the investment response of conditional monopolies to a change in...

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