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The financial system and the Pasinetti theorem

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  • Man-Seop Park

Abstract

Palley (Inside debt, aggregate demand, and the Cambridge theory of distribution, Cambridge Journal of Economics, vol. 20, no. 4, 465--74, 1996; Financial institutions and the Cambridge theory of distribution, Cambridge Journal of Economics, vol. 26, no. 2, 275--7, 2002) considers the Pasinetti theorem in the context of the credit money system where banks generate debts endogenously, and claims that the theorem ceases to hold in such a system, being valid only in the loanable funds system. This paper traces the root of Palley's claim to his assumption regarding the ownership of banks, sets out an alternative (more realistic) ownership arrangement, and thereby restores the Pasinetti theorem unscathed in the credit money system (at least in the kind Palley must have considered). The paper, however, uncovers the case where the theorem indeed collapses and discusses the reason for it: the hoarding of a non-interest-bearing asset. Copyright 2006, Oxford University Press.

Suggested Citation

  • Man-Seop Park, 2006. "The financial system and the Pasinetti theorem," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 30(2), pages 201-217, March.
    • Handle: RePEc:oup:cambje:v:30:y:2006:i:2:p:201-217
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    File URL: http://hdl.handle.net/10.1093/cje/bei056
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    Cited by:

    1. 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.
    2. Man-Seop Park, 2008. "Finance and the Cambridge Equation: A Comment," Review of Political Economy, Taylor & Francis Journals, vol. 20(3), pages 421-432.
    3. Aura Liliana De los Ríos Giraldo, 2016. "Felicidad y economía: la felicidad como utilidad en la economía," Revista Equidad y Desarrollo, Universidad de la Salle, issue 26, pages 115-143, July.

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