Why central bank policy is not income-distribution 'neutral': history, theory and practice

The purpose of this chapter is to review the role that monetary plays in affecting income distribution by first analyzing its long history going back to Keynes of the Tract almost a century ago. Keynes pursued his analysis within the orthodox Marshallian monetary theory tradition of the 1920s. However, after Keynes, this important subject of inquiry largely disappeared within the mainstream perspective until after the global financial crisis of 2007-09 and had remained a research concern only within heterodox traditions. After the crisis, while mainstream economists recognized within their theoretical models that monetary policy has short-run effects on income distribution, its effects are supposedly neutral in the long run. We show how heterodox economists, especially of post-Keynesian pedigree, who reject this short-run versus long-run dichotomy, have analyzed this link between monetary policy and income distribution by also looking at the historical experience of the last half century for a selected group of industrial countries.