PRODUCTION AND CONSUMPTION CREDIT IN A CONTINUOUS‐TIME MODEL OF THE CIRCUIT OF CAPITAL

This paper offers a characterization of the content of production and consumption credit based on the Marxian circuit of capital and a distinctive approach to credit relations. All credit allocations make the same contribution to demand, sales and profit flows, and, consequently to the pace of accumulation. Production credit uniquely contributes to investment by borrowers. Consumption credit thus effects a form of leveraging of social capital, boosting profitability while strengthening productive constraints and financial risks bearing on credit relations. Systems with higher allocations of consumption credit experience lower scopes for growth‐enhancing credit extension, and face higher aggregate levels of credit risk than comparable economies.