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The Flow of Profits: Insights from the Ex Ante Approach

In: Profits, Deficits and Instability

Author

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  • Albert Gailord Hart

Abstract

At the 1988 meeting of the American Economic Association, Robert Eisner used the first few minutes of his presidential address to urge economists to make expectational dynamics a major focus of attention. In particular, he reminded us that when we introduce as arguments in an investment function such variables as current and past output, sales, or utilisation of capacity, current or past profits, cash flow or measures of liquidity, and current or past interest rates, depreciation rates, and relative rental price or user costs of capital, … our theory tells us that the arguments we generally need are … the expected future values of those variables. Firms should invest if they expect the future demand for output to be high, if they expect the cost of capital to be higher in the future than now, and if they look to higher future profits as a consequence of current investment, but little if at all in response to current or past values of these variables. (Eisner, 1989, pp. 1–2)

Suggested Citation

  • Albert Gailord Hart, 1992. "The Flow of Profits: Insights from the Ex Ante Approach," Palgrave Macmillan Books, in: Profits, Deficits and Instability, chapter 8, pages 139-163, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11786-4_8
    DOI: 10.1007/978-1-349-11786-4_8
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