Household consumer debt, endogenous money and growth: A supermultiplier-based analysis

In order to assess the macroeconomic implications of debt-fueled consumption, a simple theoretical framework is provided. In particular, the analysis is conducted through an extended supermultiplier model with endogenous credit money, which highlights the role of the autonomous components of demand, and in particular autonomous consumption, as the main drivers of economic growth. A comparison with alternative heterodox formulations is sketched, where it is argued that, unlike the neo-Kaleckian models, in our model output growth adjusts to the path of debt-financed consumption. Having treated investment as fully induced, it follows that also the rate of capital accumulation adjusts to the rate of growth, which is itself determined by the evolution of autonomous demand. Finally, the stability of the ratio of debt to debtors’ income is proved to be affected, among other things, by the growth differential between workers’ autonomous consumption (and debt) and the other autonomous components of demand, i.e. public expenditure and capitalists’ autonomous consumption.