| Abstract: | Palley (Inside debt, aggregate demand, and the Cambridge theoryof distribution, Cambridge Journal of Economics, vol. 20, no.4, 465–74, 1996; Financial institutions and the Cambridgetheory of distribution, Cambridge Journal of Economics, vol.26, no. 2, 275–7, 2002) considers the Pasinetti theoremin the context of the credit money system where banks generatedebts endogenously, and claims that the theorem ceases to holdin such a system, being valid only in the loanable funds system.This paper traces the root of Palley's claim to his assumptionregarding the ownership of banks, sets out an alternative (morerealistic) ownership arrangement, and thereby restores the Pasinettitheorem unscathed in the credit money system (at least in thekind Palley must have considered). The paper, however, uncoversthe case where the theorem indeed collapses and discusses thereason for it: the hoarding of a non-interest-bearing asset. |
