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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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    File URL: http://www.wu-wien.ac.at/inst/vw1/gee/papers/gee!wp23.pdf
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    References listed on IDEAS

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    1. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-239, September.
    2. 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.
    3. Epstein,Gerald A. & Gintis,Herbert M., 2011. "Macroeconomic Policy after the Conservative Era," Cambridge Books, Cambridge University Press, number 9780521148412.
    4. MacKinnon, Keith & Smithin, John, 1993. "An interest rate peg, inflation and output," Journal of Macroeconomics, Elsevier, vol. 15(4), pages 769-785.
    5. Tobin, James, 1972. "Friedman's Theoretical Framework," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 852-863, Sept.-Oct.
    6. Marc Lavoie, 1992. "Foundations of Post-Keynesian Economic Analysis," Books, Edward Elgar Publishing, number 275.
    7. Rogers,Colin, 1989. "Money, Interest and Capital," Cambridge Books, Cambridge University Press, number 9780521359566.
    8. John Smithin, 1997. "An Alternative Monetary Model of Inflation and Growth," Review of Political Economy, Taylor & Francis Journals, vol. 9(4), pages 395-409.
    9. Thomas M. Humphrey, 1993. "Money, Banking and Inflation," Books, Edward Elgar Publishing, number 236.
    10. Olivier Jean Blanchard & Stanley Fischer (ed.), 1991. "NBER Macroeconomics Annual 1991," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262521652, December.
    11. Louis-Philippe Rochon, 1999. "Credit, Money and Production," Books, Edward Elgar Publishing, number 1565.
    12. Seccareccia,M., 1991. "Post Keynesian Fundism and Monetary Circulation," Working Papers 9113e, University of Ottawa, Department of Economics.
    13. 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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    Cited by:

    1. Chen, Shu-hua & Shaw, Ming-fu & Lai, Ching-chong & Chang, Juin-jen, 2008. "Interest-rate rules and transitional dynamics in an endogenously growing open economy," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 54-75, February.
    2. Ming-fu Shaw & Shu-hua Chen & Ching-chong Lai & Juin-jen Chang, 2004. "Interest Rate Rules, Target Policies, and Endogenous Economic Growth in an Open Economy," IEAS Working Paper : academic research 04-A004, Institute of Economics, Academia Sinica, Taipei, Taiwan.

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    Keywords

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