The Structure of Production and Portfolio Decisions of Investment
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Orthodox portfolio theory is at the center of the way neoclassical economics understands private investment and economic policy. Nonetheless, this theory is highly vulnerable to multiple criticisms, and its empirical validity is doubtful. This dissertation proposes an alternative to orthodox portfolio theory. The methodological core rests on the fact that the future in economics is fundamentally uncertain. This work proposes a methodology that refocuses the epistemic problem of decision-making, from predictive methods, to the generation of a language that acknowledges society’s capacity to create its economic future. The two analytical methods used here: 1- The Potential Surprise Function and 2- The Sraffa-Pasinetti framework, are compatible with this aim. The present dissertation identifies and develops a new concept that, in spite of its crucial importance, has remained hidden in the literature: The notion of the production commitment. The latter projects itself as the general form of money and financial assets. The present dissertation shows how the financial and the productive sides of the economy are inherently connected. Collective production requires division of labor. Division of labor requires the formulation of production commitments. The latter are, by definition, based on expectations. By unveiling the production commitments in the Sraffa-Pasinetti framework, the present work proposes a way to assess the compatibility of the current structure of production and the required structure of production commitments, with the existing structure of financial assets. The proposed methodology generalizes the inter-sectoral approach proposed by Keynes’ General Theory, with the inter-industry side. The structure of production is in continuous transformation due to the effects of production commitments, innovation and surprise. A language compatible with this transformative character of the economy is required. This is the role of the potential surprise function. Because of its capabilities of communicating more fully all the factors that intervene in economic decisions, this language more accurately reflects the way decision-makers view the future. The Sraffa-Pasinetti framework depicts the structure of production, production commitments unveil its expectational character, and the potential surprise function provides a way to communicate those, in monetary terms.
Table of Contents
Production commitments, the structure of production and portfolio theory -- the financial structure implicit in the Sraffa-Pasinetti framework and the inter-sector analysis of the general theory -- Production commitments and the structure of production: two of the three elements of an effective language for the formation of expectations in a monetary economy -- Shackle's potential surprise function and the formation of expectations n a monetary economy95 -- Conclusions