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

Guglielmo Forges Davanzati () and Andrea Pacella

Structural Change and Economic Dynamics, 2013, vol. 26, issue C, 1-13

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.

Keywords: Monetary theory of production; Conspicuous consumption; Investments (search for similar items in EconPapers)
JEL-codes: B5 E1 E2 N1 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:26:y:2013:i:c:p:1-13

DOI: 10.1016/j.strueco.2013.03.003

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