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Production and Consumption Credit in a Continuous-Time Model of the Circuit of Capital

Paulo dos Santos

Discussion Papers from Research on Money and Finance

Abstract: This paper offers a characterisation of the distinctive content of production and consumption credit based on the Marxian framework of the circuit of capital and a distinctive approach to credit relations. All credit allocations contribute identically to present aggregate demand and to the timely realisation of profits, thus supporting net investment and positive rates of accumulation. Production credit uniquely contributes to capital accumulation by borrowers. Thus consumption credit effects a distinctive form of leveraging of social capital, which is shown to strengthen a series of productive, credit-risk and monetary constraints bearing upon the extension of credit. Systems with higher allocations of consumption credit will generally experience lower paces of net credit extension and accumulation or higher levels of financial risk than comparable economies.

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