Two Principles Of Debt And National Income Dynamics In A Pure Credit Economy

The paper puts forward two principles of national income dynamics in a pure credit economy. The first is the commonly known principle of Keynesian/Kaleckian economics according to which total output and employment in a capitalist economy is determined by the level of business investment. In turn that investment has to be financed, so that debt is inherent in such and economy. The second principle is a principle of the conservation of debt , which argues that, while new debt creates deposits in the economy, attempts to reduce debt generate deflationary processes that off-set debt reductions by creating ëenforcedí debt in other parts of the economy. The analysis reinforces Minskyís view that debt structures require corresponding investment to manage them, and that debt problems arise when such investment is insufficient