5. Production and Investment

It should be noted that the physical capital embodied in \( \Phi \) is not the fixed capital defined in Chap.​ 2 (which is net of myros recovery charges against revenue), but rather the produced means of production that are in place at \( t \). The two differ because myros recovery charges usually bear little relationship to loss of ability to produce.

I am not aware that fluid capital has previously been viewed as a “factor” in current production, but it is clearly an important element. Production requires the purchase (and therefore the finance) of material inputs and labor, payments of rent, etc. Some of the classical economists (Ricardo, in particular) viewed capital as providing advances on production, but it is not clear that the fund involved was seen as separate from the stock of produced means of production. In any event, it is clear that production can falter from a lack of “finance” for goods-in-process. Indeed, one can imagine a circumstance in which so much of the pool of fluid capital goes into the construction of the capacity to produce that not enough remains to finance current production. Plants stand idle, because there’s no fluid capital to finance their operation. For an analysis of how taking into account the need to finance current production can cause the investment function to slope upward, see Appendix B.

Davidson (1978) refers to this price as the forward flow-supply price.

Cf. Keynes 1936, p. 136, passim).

Cf. the loose relationship between investment and the rate of interest in the surveys of investment decisions in the UK in the late 1930s. See Hall and Hitch (1939).

Since we are dealing with an increase in demand, we can (at least for the moment) ignore \( {\Phi_1} \).

The circumstances under which this contingency can arise are described in Appendix B.

Cf. Keynes’s discussion of the “finance” motive for holding money [Keynes (1937b)].

This case also illustrates how investment can take place in the absence of current saving.