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Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism

Author

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  • Qichun He

    (China Economics and Management Academy, Central University of Finance and Economics)

  • Yulei Luo

    (Faculty of Business and Economics, University of Hong Kong)

  • Jun Nie

    (Research Department, Federal Reserve Bank of Kansas City)

  • Heng-fu Zou

    (China Economics and Management Academy, Central University of Finance and Economics)

Abstract

According to Schumpeter (1934), entrepreneurs are driven to innovate not just for the fruits of success but also for success itself. This description of entrepreneurship echoes Weber's (1904- 05, German; 1958) description of the "spirit of capitalism," which states that people enjoy the accumulation of wealth regardless of its effect on smoothing consumption. This paper explores the implications of the spirit of capitalism on monetary policy, growth, and welfare in a Schumpeterian growth model. Different from the existing literature, we show that money is not superneutral in the long run and it could promote economic growth when the spirit of capitalism is strong. Furthermore, we show the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate.

Suggested Citation

  • Qichun He & Yulei Luo & Jun Nie & Heng-fu Zou, 2021. "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism," CEMA Working Papers 615, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:615
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    References listed on IDEAS

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    Cited by:

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    2. Yanzhao Liu & Liutang Gong & Jianjian Liu & Chan Wang, 2022. "Dynamic Efficiency in an OLG Model With the Spirit of Capitalism," Annals of Economics and Finance, Society for AEF, vol. 23(2), pages 315-328, November.
    3. Angus C. Chu, 2022. "Inflation, innovation, and growth: A survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 863-878, July.
    4. Song, Wei & Yang, Yibai, 2024. "Monetary policy in a Schumpeterian economy with endogenous fertility and human capital accumulation," Journal of Macroeconomics, Elsevier, vol. 80(C).
    5. Xindong Cheng & Yingjue Wang & Jinqiang Yang, 2021. "Entrepreneurial Spirit and Entrepreneurial Finance," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 367-388, November.
    6. He, Qichun, 2023. "The inverted-U effect of inflation on growth: Cross-country evidence," Economic Modelling, Elsevier, vol. 128(C).
    7. Qichun He & Xin Yang & Heng-fu Zou, 2024. "Money, Growth, and Welfare in a Schumpeterian Model with Automation," CEMA Working Papers 640, China Economics and Management Academy, Central University of Finance and Economics.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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