ABSTRACT
This chapter examines the cash flow, present value, and balance sheet implications of hedge, speculative, and Ponzi financial postures for business firms. Between 1946 and 1965 the American economy exhibited consistent and fundamentally tranquil progress; these years were characterized by a close approximation of both full employment and price level stability. The neoclassical synthesis treats the complex system of financial institutions and instruments that are used to finance ownership of capital assets in a cavalier way. As financial instability is one facet of the serious business cycles of history, a theory that explains financial instability will enable us to understand why our economy is intermittently unstable. Three financial postures for firms, households, and government units can be differentiated by the relation between the contractual payment commitments due to their liabilities and their primary cash flows. The fundamental variables in analyzing the financial structure of business firms are the cash receipts and payments of economic units over a relevant time period.
