Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Thu Sep 24 08:58:45 PDT 1998

I think James Crotty puts his finger on a big question here, and expert clarifications would be most welcome:

"Minsky is quite emphatic...(an) investment decline can never be *initiated* by a prior decline in the expected profitability of investment; rather, it takes an intial drop in investment to induce a *subsequent* decline in profits. Investment and profits are not mutually codetermining: investment spending calls the tune and profits dance accordingly. As Minsky puts it: 'In the simplest Kalecki case, where aggregate profit equals aggregate investment, the shortfall of realized profits below anticipated profits requires a logically prior shorttfall of investment. This leaves the question of...crises..and...depressions unexplained, for it is the decline of investment that has to be explained.' Minsky's view on this point is also summarized in the following quotation: 'The profitability of existing capital--and profit expectations-can only change if investment and expected investment [first]decline. Thus we have took elsewhere--to arguments other than those derived from assumed properties of production functions and hand waves with regard to over-investment--to explain why the marginal efficiency o investment falls. The natural place to look within the Schumpeter-Keynes-Kalecki vision is in the impact of financing relations.' Thus, Minsky, can find no impediments to perpetual balanced growth in the real sector of the economy. The roots of instability are to be found in the financial markets." Journal of Post Keyensian Economics, Summer 1990, p.530


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