A structural explanation for high interest rates in a rentier-led economy with endogenous money

Urban Sušnik

Economic Research-Ekonomska Istraživanja, 2017, vol. 30, issue 1, 334-348

Abstract: In neoclassical economic analysis factors receive their rewards based on their relative scarcity; the more abundant a factor is, the lesser its remuneration. This approach can be traced back to Ricardo’s theory of rent on land. While this is a sound theory for determining rent on land, it cannot be generally applied to all production factors such as labour and capital, especially since the nature of the latter lends itself to somewhat questionable quantification. In the paper I am able to show, with the help of a stock-flow model, that in a setting where loanable money capital and labour are abundant and virtually inexhaustible; high, even double-digit interest rates, can emerge. Reasons for this are structural, they depend on power relations between different groups and on the underlying institutional arrangement in a given society.

Date: 2017
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DOI: 10.1080/1331677X.2017.1305801

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