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Financial institutions and the Cambridge theory of distribution

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  • Thomas I. Palley

Abstract

This paper shows how the Cambridge theory of distribution is affected by the nature of financial intermediation. When credit markets are akin to loanable funds markets in which lenders transfer resources to borrowers, the Cambridge theory holds and steady-state income distribution is independent of workers' saving behaviour. However, when credit markets embody endogenously generated bank money, the Cambridge theory does not hold. Financial institutions and endogenous money therefore matter for long-run steady-state outcomes, just as they do for short-run macroeconomic outcomes. Copyright 2002, Oxford University Press.

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  • Thomas I. Palley, 2002. "Financial institutions and the Cambridge theory of distribution," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 26(2), pages 275-277, March.
    • Handle: RePEc:oup:cambje:v:26:y:2002:i:2:p:275-277
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    Cited by:

    1. Man-Seop Park, 2008. "Finance and the Cambridge Equation: A Comment," Review of Political Economy, Taylor & Francis Journals, vol. 20(3), pages 421-432.

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