The financial system and the Pasinetti theorem

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Palley (Inside debt, aggregate demand, and the Cambridge theory of distribution, Cambridge Journal of Economics, vol. 20, no. 4, 465-74, 1996; Financial institutions and the Cambridge theory of distribution, Cambridge Journal of Economics, vol. 26, no. 2, 275-7, 2002) considers the Pasinetti theorem in the context of the credit money system where banks generate debts endogenously, and claims that the theorem ceases to hold in such a system, being valid only in the loanable funds system. This paper traces the root of Palley's claim to his assumption regarding the ownership of banks, sets out an alternative (more realistic) ownership arrangement, and thereby restores the Pasinetti theorem unscathed in the credit money system (at least in the kind Palley must have considered). The paper, however, uncovers the case where the theorem indeed collapses and discusses the reason for it: the hoarding of a non-interest-bearing asset.

Original languageEnglish
Pages (from-to)201-217
Number of pages17
JournalCambridge Journal of Economics
Volume30
Issue number2
DOIs
Publication statusPublished - 2006 Mar

Keywords

  • Credit money system
  • Loanable funds system
  • Pasinetti theorem

ASJC Scopus subject areas

  • Economics and Econometrics

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