Volume: 7 Issue: 1

European Journal of Economics and Economic Policies: Intervention

Emulation, indebtedness and income distribution: A monetary theory of production approach

Guglielmo Forges Davanzati and Andrea Pacella

Abstract

The aim of this paper is to study the effect of emulation within a basic schema of the monetary theory of production (MTP). A theoretical model is presented, where workers set their target level of consumption based on the comparison with other workers taken as reference. It is shown that emulation can play a crucial role in increasing workers' propensity to indebtedness. As a result, profits increase and so does the price level, thus generating a decline of the real wage. Moreover, the existence of indebtedness can provide a further solution to the so-called »paradox of profits« within the MTP.

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