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Finance and the Cambridge equation

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  • Giuseppe Ciccarone

Abstract

A profit-making financial system is introduced into the Pasinetti model of growth and distribution with the aim of showing that Pasinetti's formulation implicitly incorporated a well-defined theory of finance. In a golden age, the financial sector must set the rates of interest below the rate of profit to compensate for the remuneration of risks of enterprise generated by expectations realized in the broad, but not at the level of individual firms. If there exists a relationship between investment and finance, intermediaries contribute to the determination of the rates of profit and growth. Their decisions may not allow a competitive economy to return to the golden age once pushed away from it.

Suggested Citation

  • Giuseppe Ciccarone, 2004. "Finance and the Cambridge equation," Review of Political Economy, Taylor & Francis Journals, vol. 16(2), pages 163-177.
    • Handle: RePEc:taf:revpoe:v:16:y:2004:i:2:p:163-177
    DOI: 10.1080/0953825042000183172
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    References listed on IDEAS

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    1. Fazi, Elido & Salvadori, Neri, 1985. "The Existence of a Two-Class Economy in a General Cambridge Model of Growth and Distribution," Cambridge Journal of Economics, Oxford University Press, vol. 9(2), pages 155-164, June.
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    3. Carlo Panico & Neri Salvadori (ed.), 1993. "Post Keynesian Theory Of Growth And Distribution," Books, Edward Elgar Publishing, number 578.
    4. N. F. Laing, 1969. "Two Notes on Pasinetti's Theorem," The Economic Record, The Economic Society of Australia, vol. 45(3), pages 373-385, September.
    5. Fazi, Elido & Salvadori, Neri, 1981. "The Existence of a Two-Class Economy in the Kaldor Model of Growth and Distribution," Kyklos, Wiley Blackwell, vol. 34(4), pages 582-592.
    6. Laing, N F, 1969. "Two Notes on Pasinetti's Theorem," The Economic Record, The Economic Society of Australia, vol. 45(111), pages 373-385, September.
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    Cited by:

    1. Man-Seop Park, 2008. "Finance and the Cambridge Equation: A Comment," Review of Political Economy, Taylor & Francis Journals, vol. 20(3), pages 421-432.
    2. Man-Seop Park, 2005. "Finance and the Cambridge Equation: A Commentary Note," Discussion Paper Series 0504, Institute of Economic Research, Korea University.
    3. Mundt, Philipp & Förster, Niels & Alfarano, Simone & Milaković, Mishael, 2014. "The real versus the financial economy: A global tale of stability versus volatility," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-26.

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