Article ID Journal Published Year Pages File Type
989380 Structural Change and Economic Dynamics 2013 13 Pages PDF
Abstract

•We model the profits-investments puzzle.•We use a heterodox methodology.•We examine changes in profits and capital accumulation when capitalists’ consumption prevails.•We conclude that capitalists’ consumption increases profits reducing capital accumulation.

The aim of this paper is to provide an interpretation of the so-called profits-investments puzzle, in the theoretical framework of the monetary theory of production (MTP) and with reference to ‘radical’ Institutional issues. In methodological terms, the exercise provided here is designed to graft elements of the ‘macrofoundation of microeconomics’ onto the MTP. It will be shown that investments may not increase significantly as a result of a profit increase due to the expansion of ‘unproductive consumption’ by capitalists (particularly of luxury goods). The way increasing consumption of luxury goods affects the path of investments will be analysed, under the assumption, deriving from Veblen, that capitalists are interested in competitive, conspicuous consumption.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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