Finance and the Cambridge equation

Giuseppe Ciccarone

Review of Political Economy, 2004, vol. 16, issue 2, 163-177

Abstract: A profit-making financial system is introduced into the Pasinetti model of growth and distribution with the aim of showing that Pasinetti's formulation implicitly incorporated a well-defined theory of finance. In a golden age, the financial sector must set the rates of interest below the rate of profit to compensate for the remuneration of risks of enterprise generated by expectations realized in the broad, but not at the level of individual firms. If there exists a relationship between investment and finance, intermediaries contribute to the determination of the rates of profit and growth. Their decisions may not allow a competitive economy to return to the golden age once pushed away from it.

Date: 2004
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DOI: 10.1080/0953825042000183172

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