Household consumer debt, endogenous money and growth: A supermultiplier-based analysis
DOI:
https://doi.org/10.13133/2037-3643_69.278_1Keywords:
effective demand, economic growth, supermultiplierAbstract
The paper provides a simple theoretical framework to assess the macroeconomic implications of debt-fuelled consumption. In particular, the analysis is conducted through an extended super-multiplier model with endogenous credit money, which highlights the role of the autonomous components of demand, and in particular autonomous consumption, as the main drivers of economic growth. The author sketches a comparison with alternative heterodox formulations. He argues that, unlike the neo-Kaleckian models, in the model proposed here output growth adjusts to the path of debt-financed consumption. Having treated investment as fully induced, it follows that also the rate of capital accumulation adjusts to the rate of growth, which is itself determined by the evolution of autonomous demand. Finally, it is shown that the stability of the ratio of debt to debtors’ income is affected, among other things, by the growth differential between workers’ autonomous consumption (and debt) and the other autonomous components of demand, i.e. public expenditure and capitalists’ autonomous consumption.
JEL Classification: E11, E12, E44, G01
References
Allain O. (2015), “Tackling the Instability of Growth: A Kaleckian-Harrodian Model with an Autonomous Expenditure Component”, Cambridge Journal of Economics, vol. 39 n. 5, pp. 1351–1371. Available at: http://doi.org/ 10.1093/cje/beu039.
Amadeo E.J. (1986), “The Role of Capacity Utilization in Long-Period Analysis”, Political Economy, vol. 2 n. 2, pp. 147–160.
Barba A., Pivetti M. (2009), “Rising Household Debt: Its Causes and Macroeconomic Implications—a Long-Period Analysis”, Cambridge Journal of Economics, vol. 33 n. 1, pp. 113–137. Available at: http://doi.org/10.1093/cje/ben030.
Bhaduri A. (2011), “A Contribution to the Theory of Financial Fragility and Crisis”, Cambridge Journal of Economics, vol. 35 n. 6, pp. 995–1014. Available at: http://doi.org/10.1093/cje/ber011.
Bhaduri A., Laski K., Riese M. (2006), “A Model of Interaction between the Virtual and the Real Economy”, Metroeconomica, vol. 57 n. 3, pp. 412–427. Available at: http://doi.org/10.1111/j.1467-999X.2006.00247.x.
Cesaratto S. (2015), “Neo-Kaleckian and Sraffian Controversies on the Theory of Accumulation”, Review of Political Economy, vol. 27 n. 2, pp. 154–182. Available at: http://doi.org/10.1080/09538259.2015.1010708.
Cesaratto S., Serrano F., Stirati A. (2003), “Technical Change, Effective Demand and Employment”, Review of Political Economy, vol. 15 n. 1, pp. 33–52. Available at: http://doi.org/10.1080/09538250308444.
Cesaratto S., Stirati A. (2010), “Germany and the European and Global Crises”, International Journal of Political Economy, vol. 39 n. 4, pp. 56–86.
Ciccone R. (1986), “Accumulation and Capacity Utilisation: Some Critical Comments on Joan Robinson’s Theory of Distribution”, Political Economy, vol. 2 n. 1, pp. 17–36.
Ciccone R. (2011), “Capacity Utilization, Mobility of Capital and the Classical Process of Gravitation”, in R. Ciccone, C. Gehrke, G. Mongiovi (eds.), Sraffa and Modern Economics, Volume II, Abingdon, Oxon: Routledge, pp. 76–86.
Committeri M. (1986), “Some Comments on Recent Contributions on Capital Accumulation, Income Distribution and Capacity Utilization”, Political Economy, vol. 2 n. 2, pp. 161–186.
Cynamon B.Z., Fazzari S.M. (2008), “Household Debt in the Consumer Age: Source of Growth-Risk of Collapse”, Capitalism and Society, vol. 3 n. 2, pp. 1–30. Available at: http://doi.org/10.2202/1932-0213.1037.
Cynamon B.Z., Fazzari S.M. (2013), “The End of the Consumer Age”, in B. Z. Cynamon, S. M. Fazzari, M. Setterfield (eds.), After the Great Recession: The Struggle for Economic Recovery and Growth, Cambridge: Cambridge University Press, pp. 129–157.
Cynamon B.Z., Fazzari S.M. (2015a), “Inequality, the Great Recession and Slow Recovery”, Cambridge Journal of Economics Available at: http://doi.org/ 10.1093/cje/bev016.
Cynamon B.Z., Fazzari S.M. (2015b), “Rising Inequality and Stagnation in the US Economy”, European Journal of Economics and Economic Policies: Intervention, vol. 12 n. 2, pp. 170–182.
Dejuán Ó. (2013a), “Hidden Links in the Warranted Rate of Growth”, paper presented at the 17th Annual Conference of the European Society for the History of Economic Thought, May 16-18, Kingston University, London.
Dejuán Ó. (2013b), “The Debt Trap”, in Ó. Dejuán, E. Febrero, J. Uxó (eds.), Post-Keynesian Views of the Crisis and its Remedies, Abingdon, Oxon: Routledge, pp. 87–107.
Dutt A.K. (2006), “Maturity, Stagnation and Consumer Debt: A Steindlian Approach”, Metroeconomica, vol. 57 n. 3, pp. 339–364. Available at: http://doi.org/ 10.1111/j.1467-999X.2006.00246.x.
Fontana G., Setterfield M. (2009), “Macroeconomics, Endogenous Money and the Contemporary Financial Crisis: A Teaching Model”, International Journal of Pluralism and Economics Education, vol. 1 n. 1–2, pp. 130–147. Available at: http://doi.org/10.1504/IJPEE.2009.02897.
Freitas F., Serrano F. (2015), “Growth Rate and Level Effects, the Stability of the Adjustment of Capacity to Demand and the Sraffian Supermultiplier”, Review of Political Economy, vol. 27 n. 3, pp. 258–281. Available at: http://doi.org/ 10.1080/09538259.2015.1067360.
Garegnani P. (1992), “Some Notes for an Analysis of Accumulation”, in J. Halevi, D. Laibman, E. G. Nell (eds.), Beyond the Steady State: A Revival of Growth Theory, London: Macmillan, pp. 47–71.
Girardi D., Pariboni R. (2015), “Autonomous Demand and Economic Growth: Some Empirical Evidence”, n. 13, available at http://www.centrosraffa.org /public/4a625260-55f1-4d26-bcfe-1c7f75e36301.pdf.
Harvey D. (2007), A Brief History of Neoliberalism, Oxford: Oxford University Press.
Hein E. (2012a), “Finance-Dominated Capitalism, Re-Distribution, Household Debt and Financial Fragility in a Kaleckian Distribution and Growth Model”, PSL Quarterly Review, vol. 65 n. 260, pp. 11–51. Retrieved from http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9937.
Hein E. (2012b), “Finance-Dominated Capitalism, Re-Distribution, Household Debt and Financial Fragility in a Kaleckian Distribution and Growth Model”, PSL Quarterly Review, vol. 65 n. 260, pp. 11–51.
Hein E., Lavoie M., van Treeck T. (2012), “Harrodian Instability and the ‘Normal Rate’ of Capacity Utilization in Kaleckian Models of Distribution and Growth – A Survey”, Metroeconomica, vol. 63 n. 1, pp. 139–169. Available at: http://doi.org/ 10.1111/j.1467-999X.2010.04106.x.
Isaac A.G., Kim Y.K. (2013), “Consumer and Corporate Debt: A Neo-Kaleckian Synthesis”, Metroeconomica, vol. 64 n. 2, pp. 244–271. Available at: http://doi.org/10.1111/meca.12005.
Kaldor N. (1955), “Alternative Theories of Distribution”, The Review of Economic Studies, vol. 23 n. 2, pp. 83–100. Retrieved from http://www.jstor.org/ stable/2296292.
Kim Y.K., Setterfield M., Mei Y. (2014), “A Theory of Aggregate Consumption”, European Journal of Economics and Economic Policies: Intervention, vol. 11 n. 1, pp. 31–49. Available at: http://doi.org/10.4337/ejeep.2014.01.03.
Kim Y.K., Setterfield M., Mei Y. (2015), “Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behaviour”, Cambridge Journal of Economics, vol. 39 n. 1, pp. 93–112. Available at: http://doi.org/10.1093/cje/beu029.
Kumhof M., Rancière R., Winant P. (2015), “Inequality, Leverage, and Crises”, The American Economic Review, vol. 105 n. 3, pp. 1217–1245. Available at: http://doi.org/10.1257/aer.20110683.
Kurz H.D. (1986), “‘Normal’ Positions and Capital Utilisation”, Political Economy, vol. 2 n. 1, pp. 37–54. Retrieved from http://www.centrosraffa.org/pe/2,1/2,1.3. Kurz.pdf.
Lavoie M. (2003), “A Primer on Endogenous Credit-Money”, in L.-P. Rochon, S. Rossi (eds.), Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 506–543.
Lavoie M. (2014), Post-Keynesian Economics. New Foundations, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
Levrero E.S. (2013), “Marx on Absolute and Relative Wages and the Modern Theory of Distribution”, Review of Political Economy, vol. 25 n. 1, pp. 91–116. Available at: http://doi.org/10.1080/09538259.2013.737126.
Palley T.I. (1994), “Debt, Aggregate Demand, and The Business Cycle: An Analysis in the Spirit of Kaldor and Minsky”, Journal of Post Keynesian Economics, vol. 16 n. 3, pp. 371–390. Available at: http://doi.org/10.1080/01603477.1994. 11489991.
Palley T.I. (1997), “Endogenous Money and the Business Cycle”, Journal of Economics, vol. 65 n. 2, pp. 133–149. Available at: http://doi.org/ 10.1007/BF01226931.
Palley T.I. (2009), “The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis”, n. 11/2009, available at http://www.boeckler.de/ pdf/p_imk_wp_11_2009.pdf.
Palley T.I. (2010), “Inside Debt and Economic Growth: A Neo-Kaleckian Analysis”, in M. Setterfield (ed.), Handbook of Alternative Theories of Economic Growth, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 293–308.
Palley T.I. (2014), “Aggregate Demand, Endogenous Money, and Debt: A Keynesian Critique of Keen and an Alternative Theoretical Framework”, Review of Keynesian Economics, vol. 2 n. 3, pp. 312–320. Available at: http://doi.org/ 10.4337/roke.2014.03.03.
Palma J.G. (2009), “The Revenge of the Market on the Rentiers. Why Neo-Liberal Reports of the End of History Turned out to Be Premature”, Cambridge Journal of Economics, vol. 33 n. 4, pp. 829–869. Available at: http://doi.org/ 10.1093/cje/bep037.
Pariboni R. (2016), “Autonomous Demand and the Marglin-Bhaduri Model: A Critical Note”, Review of Keynesian Economics, forthcoming.
Rajan R.G. (2010), Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton: Princeton University Press.
Rowthorn R. (1981), “Demand, Real Wages and Economic Growth”, Thames Papers in Political Economy, pp. 1–39.
Serrano F. (1995a), “Long Period Effective Demand and the Sraffian Supermultiplier”, Contributions to Political Economy, vol. 14 n. 1, pp. 67–90.
Serrano F. (1995b), “The Sraffian Supermultiplier”, available at www.ie.ufrj.br/ ecopol/pdfs/31/C5.pdf.
Skott P. (2012), “Theoretical and Empirical Shortcomings of the Kaleckian Investment Function”, Metroeconomica, vol. 63 n. 1, pp. 109–138. Available at: http://doi.org/10.1111/j.1467-999X.2010.04111.x.
Steindl J. (1952), Maturity and Stagnation in American Capitalism, Oxford: Blackwell.
Stirati A. (1994), The Theory of Wages in Classical Economics: A Study of Adam Smith, David Ricardo, and Their Contemporaries, Aldershot: Edward Elgar.
Stockhammer E. (2015), “RisingIinequality as a Cause of the Present Crisis”, Cambridge Journal of Economics, vol. 39 n. 3, pp. 935–958. Available at: http://doi.org/10.1093/cje/bet052.
Vercelli A. (2015), “The Neoliberal Trajectory, the Great Recession and Sustainable Development”, in P. Arestis, M. Sawyer (eds.), Finance and the Macroeconomics of Environmental Policies, Basingstoke: Palgrave Macmillan, pp. 37–73.
Zezza G. (2008), “U.S. Growth, the Housing Market, and the Distribution of Income”, Journal of Post Keynesian Economics, vol. 30 n. 3, pp. 375–401.
Downloads
Published
How to Cite
Issue
Section
License
