Income Distribution in a Monetary Economy: A Ricardo-Keynes Synthesis
AbstractThe paper provides a novel theory of income distribution and achieves an integration of monetary and value theories along Ricardian lines, extended to a monetary production economy as understood by Keynes. In a monetary economy, capital is a fund that must be maintained. This idea is captured in the circuit of capital as first defined by Marx. We introduce the circuit of fixed capital; this circuit is closed when the present value of prospective returns from employing it is equal to its supply price. In a steady-growth equilibrium with nominal wages and interest rates given, the equation that closes the circuit of fixed capital can be solved for prices, implying a definitive income distribution. Accordingly, the imputation for fixed capital costs is equivalent to that of a money contract of equal length, which is the payment per period that will repay the cost of the fixed asset, together with interest. It follows that if capital assets remain in use for a period longer than is required to amortize them, their earnings beyond that period have an element of pure rent.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_672.
Date of creation: May 2011
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Web page: http://www.levyinstitute.org
Income Distribution; Circuits of Capital; Monetary Economy;
Find related papers by JEL classification:
- D33 - Microeconomics - - Distribution - - - Factor Income Distribution
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Institutional; Evolutionary
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-04 (All new papers)
- NEP-HME-2011-06-04 (Heterodox Microeconomics)
- NEP-MON-2011-06-04 (Monetary Economics)
- NEP-PKE-2011-06-04 (Post Keynesian Economics)
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