Money, Banks and Finance in Economic Thought

Investment, saving and finance in a dynamic context

Sardoni Claudio, Sapienza University of Rome

In the 1980s Asimakopulos in dealing with the problems of finance, liquidity, investment and saving, criticized both Kalecki and Keynes for the way they dealt with the problem of the multiplier e↵ects of investment. For Asi- makopulos, Kalecki and Keynes had not paid enough attention to the process in time through which the multiplier e↵ect of investment brings the economy to a higher equilibrium. Kalecki’s and Keynes’s insu�cient attention to the time dimension of the multi- plier process led them to underestimate the importance of financing investment projects, especially with regard to the problem of the conversion of the investing firms’ short-term borrowing into long-term borrowing. When this issue is taken into due consideration, it appears that the economy’s propensity to save plays some role in the determination of the conditions under which firms can carry out their investment plans. The paper concentrates on the main point made by Asimakopulos, that is to say that the relation between saving and investment is more complex than usu- ally admitted by Keynes and Keynesian economists. In a dynamical analytical context which takes explicit account of the time dimension of processes, the economy’s propensity to save can a↵ect investment, even though this does not imply the rejection of the view that investment ‘comes first’. A dynamic analytical approach to the multiplier has the merit to emphasize the crucial role that banks and the financial system play in the process of eco- nomic expansion. Something that had been pointed and stressed by Robertson in particular but was almost totally overlooked by Keynes, as his approach was mainly based on the comparison between equilibrium positions rather than on the dynamic analysis of the process leading to equilibrium. The paper is organized as follows. Section 2 is devoted to a brief exposition of Asimakopulos’s criticism of Kalecki and Keynes. Section 3 presents a simple for- malization of the multiplier process by explicitly considering its timing and the problem of financing investment both short and long-term. Section 4 concludes by looking at some more general issues concerning the need for considering the time dimension of the investment process and the implications that this can have from both an analytical and a policy perspective.

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Keywords: Multiplier; Investment; banks and finance; dynamics;

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