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The profits-investments puzzle: A Post Keynesian-Institutional interpretation

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  • Forges Davanzati, Guglielmo
  • Pacella, Andrea

Abstract

The aim of this paper is to provide an interpretation of the so-called profits-investments puzzle, in the theoretical framework of the monetary theory of production (MTP) and with reference to ‘radical’ Institutional issues. In methodological terms, the exercise provided here is designed to graft elements of the ‘macrofoundation of microeconomics’ onto the MTP. It will be shown that investments may not increase significantly as a result of a profit increase due to the expansion of ‘unproductive consumption’ by capitalists (particularly of luxury goods). The way increasing consumption of luxury goods affects the path of investments will be analysed, under the assumption, deriving from Veblen, that capitalists are interested in competitive, conspicuous consumption.

Suggested Citation

  • Forges Davanzati, Guglielmo & Pacella, Andrea, 2013. "The profits-investments puzzle: A Post Keynesian-Institutional interpretation," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 1-13.
    • Handle: RePEc:eee:streco:v:26:y:2013:i:c:p:1-13
    DOI: 10.1016/j.strueco.2013.03.003
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    More about this item

    Keywords

    Monetary theory of production; Conspicuous consumption; Investments;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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