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Papadimitriou, Dimitri B. --- "Introduction" [2004] ELECD 193; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section Title: Introduction

Author(s): Papadimitriou, Dimitri B.

Number of pages: 8

Extract:

Introduction: The Financial Fragility
Hypothesis: the offspring of `Induced
Investment and Business Cycles'
Dimitri B. Papadimitriou

For more than four decades Hyman Minsky had painstakingly worked in
the areas of economics and finance and in his many writings tried with
vision and clarity to find a rational way to link the two. His research
program has provided a definitive analysis of the linkage. As most students
of his work would argue, he began with Keynes' concern with the volatility
of investments, and then recognized how serious the uncertainty of cash
flows from investments was since it could lead to serious repercussions on
the balance sheets of firms. This, in turn, requires the government to inter-
vene to reduce the systemic risks this process engenders by changing its
fiscal and/or monetary stance to prevent a debt deflation. `[T]o Minsky a
sequence of booms, government intervention to prevent debt contraction,
and new booms entails a progressive build-up of new debt, eventually
leaving the economy much more fragile financially' (Kaufman 1992, p. vii).
`Cash flow' to a firm, the buzzword in almost all his writings ­ but
nowhere to be found in the neoclassical paradigm, was nevertheless crucially
important in performing many functions including (1) signaling whether
investments undertaken were based on sound decisions, (2) providing the
funds needed by the firm to fulfill payments when due and (3) assisting in the
decision-making process for future investment financial conditions (Minsky
1982, p. xvii). An analysis of cash flows documents a ...