ABSTRACT
This essay represents an initial exploration by the author of the world of Post Keynesian thought as it pertains to investment in business fixed capital. 1 Two striking findings emerge from these first readings. A number of important ideas that have been common currency for some time in the Post Keynesian literature—interactions between the real and financial sectors of the aggregate economy, problems of imperfect information among economic agents, and the general need to consider historic relations in economic analysis—are now receiving attention in mainstream journals. 2 Bernanke and Blinder (1988) have based their recent analysis of the “credit view” of aggregate fluctuations on an extended IS-LM framework where both schedules shift in response to monetary injections and credit shocks. Stiglitz (1992) has developed a vast body of microeconomic analysis in which “information is spread disparately throughout the economy; there is limited transferability of information; and financial institutions, including banks, play a central role in the allocation process” (p. 278). Blanchard and Summers (1986) have explained the stubbornly high levels of European unemployment in terms of hysteresis, which makes “long-run equilibrium depend on history” (p. 71). Despite the Post Keynesian literature’s prescient emphasis on these dynamic elements, the author is surprised by the largely static mode of analysis, which, while illustrative, is nonetheless incomplete. Many articles focus on steady states (despite a strong commitment to the fundamentally changing nature of the economic system over time), use informal arguments to describe movements thereto, analyze expectations in a similarly informal manner, and rely on two-dimensional diagrams, all of which provide only indirect treatments of the essential dynamics. The coarseness of the analytic tools does not do justice to the richness of the ideas under discussion.
