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By Michael Perelman

This ebook integrates Keynes' observations concerning the q-theory right into a coherent thought of alternative funding. It demonstrates why, within the absence of an important post-war melancholy, company used to be relieved of the necessity to exchange out of date capital items, resulting in a interval of lengthy stagnation.

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Additional resources for Keynes, Investment Theory and the Economic Slowdown: The Role of Replacement Investment and q-Ratios

Sample text

Suppose that open market operations succeed in lowering the discount rate. Financial asset prices increase and investment becomes Keynes and Crises: Before the General Theory 29 more attractive, both increasing economic activity and expanding aggregate economic capacity . Higher incomes generate more savings. Greater capacity tends to reduce the natural rate of interest. Taken one step further, should this new investment also be productive enough, prices could actually fall. The combination of these effects can reduce the market rate of interest (Keynes, 1936, p.

Even Friedman and Schwartz admit that the data, just before the Second World War, and again after the war until the 1970s, are consistent with the Gibson paradox (M. Friedman and Schwartz, 1982, p. 563). Keynes attributed the Gibson paradox to the stickiness of the market rate of interest, as measured by the yield on long-dated securities: 'When a long period movement in the natural rate of interest is in progress, there is therefore, a prolonged tendency for investment to fall behind saving when this rate is falling because the market rate does not fall equally fast' (Keynes, 1930c, VI, p.

Moreover, some cirdes regarded hirn, like Malthus in an earlier age, as a traitor to his own class. Keynes' evaluation of Malthus was appropriate for hirnself: 'I claim for Malthus a profound economic intuition and an unusual combination of keeping an open mind to the shifting picture of experience and of constantly applying to its interpretation the principles of formal thought' (Keynes, 1933a, p. 108). In making common cause with Malthus, Keynes called attention to the novelty of his own analysis.

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