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The Rate of Interest, Economic Growth, and Inflation: An Alternative Theoretical Perspective

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  • John Smithin

    () (Department of Economics and the Schulich School of Business, York University, Toronto)

Abstract

The premise of this paper is that in a monetary production economy, policy decisions of the central bank, or more generally the ‘monetary authority’, set the tone not only for nominal interest rates but also for ‘real’ interest rates defined in the usual way. This is a different question than that of which institution(s) acquire the status of monetary authority at any particular stage of socioeconomic or technological development. Rather the suggestion is that the existence of some such social structure is a prerequisite if anything resembling capitalist monetary production is to be viable. The paper demonstrates that a coherent macroeconomic theory can be elaborated on this basis, including an explanation of economic growth, the business cycle, inflation, the functional distribution of income, the ‘Keynesian’ problem of the impact of demand growth on economic growth, endogenous money, cumulative causation, and endogenous technical change.

Suggested Citation

  • John Smithin, 2002. "The Rate of Interest, Economic Growth, and Inflation: An Alternative Theoretical Perspective," Working Papers geewp23, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  • Handle: RePEc:wiw:wiwgee:geewp23
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    References listed on IDEAS

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    1. Kilpatrick, Andrew & Lawson, Tony, 1980. "On the Nature of Industrial Decline in the UK," Cambridge Journal of Economics, Oxford University Press, vol. 4(1), pages 85-102, March.
    2. Epstein,Gerald A. & Gintis,Herbert M., 2011. "Macroeconomic Policy after the Conservative Era," Cambridge Books, Cambridge University Press, number 9780521148412, May.
    3. Tobin, James, 1972. "Friedman's Theoretical Framework," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 852-863, Sept.-Oct.
    4. John Smithin, 1997. "An Alternative Monetary Model of Inflation and Growth," Review of Political Economy, Taylor & Francis Journals, vol. 9(4), pages 395-409.
    5. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-239, September.
    6. MacKinnon, Keith & Smithin, John, 1993. "An interest rate peg, inflation and output," Journal of Macroeconomics, Elsevier, vol. 15(4), pages 769-785.
    7. Louis-Philippe Rochon, 1999. "Credit, Money and Production," Books, Edward Elgar Publishing, number 1565.
    8. Seccareccia,M., 1991. "Post Keynesian Fundism and Monetary Circulation," Working Papers 9113e, University of Ottawa, Department of Economics.
    9. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Keywords

    interest rates; monetary policy; macroeconomics; growth; inflation;

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