chapter  3
12 Pages

The Financial Instability Hypothesis: An Interpretation of Keynes and an Alternative to "Standard" Theory

The focus will be on business debt, because this debt is an essential characteristic of a capitalist economy. The validation of business debt requires that prices and outputs be such that almost all firms earn large enough surpluses over labor and material costs either to fulfill the gross payments required by debt or to induce refinancing. Refinancing takes place only if gross profits are expected to be large enough to either validate the new debt or induce further refinancing.