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The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth

  • Hein, Eckhard

We review the main arguments put forward against the horizontalist view of endogenous credit and money and an exogenous rate of interest under the control of monetary policies. We argue that the structuralist arguments put forward in favour of an endogenously increasing interest rate when investment and economic activity are rising, due to increasing indebtedness of the firm sector or decreasing liquidity in the commercial bank sector, raise major doubts from a macroeconomic perspective. This is shown by means of examining the effect of increasing capital accumulation on the debt-capital ratio of the firm sector in a simple Kaleckian distribution and growth model. In particular we show that rising (falling) capital accumulation may be associated with a falling (rising) debt-capital ratio for the economy as a whole and hence with the ‘paradox of debt’. Therefore, the treatment of the rate of interest as an exogenous macroeconomic distribution parameter in Post-Keynesian distribution and growth models seems to be well founded.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23372.

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Date of creation: Jun 2010
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Handle: RePEc:pra:mprapa:23372
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  1. Peter Howells, 2005. "The Endogeneity of Money: Empirical Evidence," Working Papers 0513, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  2. Eckhard Hein, 2006. "Interest, Debt and Capital Accumulation—A Kaleckian Approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 337-352.
  3. Eckhard Hein & Engelbert Stockhammer, 2007. "Macroeconomic policy mix, employment and inflation in a Post-Keynesian alternative to the New Consensus Model," Department of Economics Working Papers wuwp110, Vienna University of Economics and Business, Department of Economics.
  4. Thomas I. Palley, 1996. "Accommodationism versus Structuralism: Time for an Accommodation," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(4), pages 585-594, July.
  5. Hein, Eckhard & Schoder, Christian, 2009. "Interest rates, distribution and capital accumulation – A Post-Kaleckian perspective on the US and Germany," MPRA Paper 18223, University Library of Munich, Germany.
  6. Lavoie, M., 1993. "Interest Rates in Post-Keynesian Models of Growth and Distribution," Working Papers 9314e, University of Ottawa, Department of Economics.
  7. Eckhard Hein, 2005. "Wage bargaining and monetary policy in a Kaleckian monetary distribution and growth model: trying to make sense of the NAIRU," IMK Working Paper 08-2005, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  8. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Economics Working Paper Archive wp_302, Levy Economics Institute.
  9. Arestis, Philip & Howells, Peter, 1996. "Theoretical Reflections on Endogenous Money: The Problem with 'Convenience Lending.'," Cambridge Journal of Economics, Oxford University Press, vol. 20(5), pages 539-51, September.
  10. Wray, L Randall, 1992. "Alternative Theories of the Rate of Interest," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 69-89, March.
  11. John Smithin, 1997. "An Alternative Monetary Model of Inflation and Growth," Review of Political Economy, Taylor & Francis Journals, vol. 9(4), pages 395-409.
  12. Eckhard Hein & Carsten Ochsen, 2003. "Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies," Metroeconomica, Wiley Blackwell, vol. 54(4), pages 404-433, November.
  13. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 73-88, January.
  14. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 103-13, January.
  15. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar, number 474, 6.
  16. Antonio J.A. Meirelles & Gilberto Tadeu Lima, 2006. "Debt, financial fragility, and economic growth: a Post Keynesian macromodel," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(1), pages 93-115, October.
  17. Arestis, Philip & Howells, Peter, 1999. "The Supply of Credit Money and the Demand for Deposits: A Reply," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 115-19, January.
  18. Hein, Eckhard, 1999. "Interest Rates, Income Shares, and Investment in a Kaleckian Model," MPRA Paper 18607, University Library of Munich, Germany.
  19. Eckhard Hein, 2004. "Interest rate, debt, distribution and capital accumulation in a post-Kaleckian model," Macroeconomics 0412005, EconWPA.
  20. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
  21. Lavoie, Marc, 1996. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(3), pages 275-300, August.
  22. Amitava Krishna Dutt, 1995. "Internal Finance And Monopoly Power In Capitalist Economies: A Reformulation Of Steindl'S Growth Model," Metroeconomica, Wiley Blackwell, vol. 46(1), pages 16-34, 02.
  23. Thomas I. Palley, 1994. "Competing Views Of The Money Supply Process: Theory And Evidence," Metroeconomica, Wiley Blackwell, vol. 45(1), pages 67-88, 02.
  24. Edward Amadeo & A.K Dutt, 1991. "A post-Keynesian theory of growth, interest and money," Textos para discussão 264, Department of Economics PUC-Rio (Brazil).
  25. Giuseppe Fontana, 2004. "Rethinking Endogenous Money: A Constructive Interpretation Of The Debate Between Horizontalists And Structuralists," Metroeconomica, Wiley Blackwell, vol. 55(4), pages 367-385, November.
  26. Giuseppe Fontana, 2003. "Post Keynesian Approaches to Endogenous Money: A time framework explanation," Review of Political Economy, Taylor & Francis Journals, vol. 15(3), pages 291-314.
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