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Inside Debt, Aggregate Demand, and the Cambridge Theory of Distribution

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  • Palley, Thomas I

Abstract

This paper presents a Kaleckian model of aggregate demand with inside debt and a generational structure. The model shows how worker borrowing and population growth affect the level of aggregate demand. It also reexamines the Cambridge theorem and shows that the introduction of inside debt arising from worker borrowing means that the rate of profit and profit share are no longer independent of worker consumption behavior because increased worker borrowing increases capitalists' debt service income. This necessitates a decline in profits to maintain the balance between capitalists' savings and their investment funding requirement. (c) 1996 Academic Press Limited Copyright 1996 by Oxford University Press.

Suggested Citation

  • Palley, Thomas I, 1996. "Inside Debt, Aggregate Demand, and the Cambridge Theory of Distribution," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(4), pages 465-474, July.
    • Handle: RePEc:oup:cambje:v:20:y:1996:i:4:p:465-74
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    Cited by:

    1. Soon Ryoo, 2016. "Household debt and housing bubbles: a Minskian approach to boom-bust cycles," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 971-1006, December.
    2. Javier López-Bernardo & Félix López-Martínez & Engelbert Stockhammer, 2016. "A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’," Review of Political Economy, Taylor & Francis Journals, vol. 28(2), pages 190-204, April.
    3. Thomas I. Palley, 2013. "The Simple Analytics of Debt-driven Business Cycles," Palgrave Macmillan Books, in: Financialization, chapter 4, pages 62-81, Palgrave Macmillan.
    4. Heather Boushey & Christian E. Weller, 2006. "Inequality and Household Economic Hardship in the United States of America," Working Papers 18, United Nations, Department of Economics and Social Affairs.
    5. Javier López Bernardo & Engelbert Stockhammer & Félix López Martínez, 2016. "A post Keynesian theory for Tobin’s in a stock-flow consistent framework," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(2), pages 256-285, April.
    6. Francesco Ruggeri, 2021. "Household debt, aggregate demand, and instability in a Stock-Flow model," Working Papers 4/21, Sapienza University of Rome, DISS.
    7. Thomas I. Palley, 2013. "Cambridge and neo-Kaleckian growth and distribution theory: comparison with an application to fiscal policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 79-104, January.
    8. Thomas I. Palley, 2009. "Inside Debt and Economic Growth: A Cambridge - Kaleckian Analysis," IMK Working Paper 02-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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