Chapter 9: Extending Kaleckian models III: interest and credit
In the previous chapters we have not explicitly considered issues of money, credit and interest. We just assumed that, in a monetary production economy, capitalists have access to credit in order to finance investment. Therefore, aggregate saving is not a financing constraint for aggregate investment, but adjusts to the latter through income growth and changes in functional income distribution in the Kaldor–Robinson model, and in capacity utilization in the Kaleckian models. In this chapter we will now explicitly integrate monetary issues into the post-Kaleckian model. Introducing monetary variables into the model, we follow the post-Keynesian ‘horizontalist’ monetary view based on the works of Kaldor (1970a, 1982, 1985b), Lavoie (1984, 1992, chap. 4, 1996c, 2014, chap. 4) and Moore (1988, 1989a). We assume that the relevant monetary interest rate is an exogenous variable for the accumulation process, whereas the quantities of credit and money are determined endogenously by economic activity. Although the long-run independence of investment from saving immediately raises the problem of investment finance and financing costs, the introduction of monetary variables and an explicit analysis of the effects of a change in the monetary rate of interest on distribution, aggregate demand and capital accumulation or growth were missing in the older post-Keynesian growth and distribution models in the tradition of Kaldor and Robinson, and for a long period also in the models based on the work of Kalecki and Steindl.
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