ABSTRACT
In Eichner’s micro-macro synthetic model, the critical variable is planned investment. Business enterprise and its investment decisions play a key role in the determination of aggregate demand, which is the driving force of the economic systems in post-Keynesian economics. In Eichner’s view, firm-level investment and hence effective demand are strictly correlated with a firm’s pricing decision (Kregel 1978; Lee 1998). Within the post-Keynesian tradition, which stresses the primacy of retained profits as a means of financing investment, Eichner’s new idea is the proposed refinement of the markup: it depends on the demand for and supply of additional investment funds by the firm (or group of firms) that possesses the price-setting power—that is, the megacorp—which is the representative agent of the dominant oligopolistic industry in the “technically more advanced sectors of the economy, those in which just a few large firms dominate the market” (Eichner 1991, 6). In this context, price is a variable to alter intertemporal flows, and, because of its degree of market power, the megacorp can increase price above costs in order to obtain more internally generated expenditures. Indeed, prices are set to provide enough retained earnings that, along with external financing, will enable large corporations to implement their planned investment. The extent to which planned investment takes place depends on long-term expectations regarding product markets and on short-run expectations that relate to the prices of financial assets (Arestis 1996). This represents a first crucial result in Eichner’s model. Holding costs constant and ignoring changes in the supply conditions of investment, planned investments determine the industry price level, but planned investments are also the key element in the Keynesian system which, for given monetary conditions and ignoring both the public sector and the rest-of-the-world sector, determine aggregate demand. This idea of relating the variable to be explained at the industry level to the same variable that is the key determinant at the aggregate level provides microfoundations of macrodynamics within a framework that is genuinely post-Keynesian.
