| Abstract: | Summary This is the third of three successive papers on the problem of to what extent monetary phenomena influence the real variables
in a process of economic growth. In the first paper the conditions under which money is neutral was examined. The second was
devoted to the impact of money in a neo-classical growth model.
In the present paper the real neo-keynesian growth model of Harrod is taken as a starting-point. This is a special case of
the neo-classical model, for the introduction of a constant rate of interest in a neoclassical production structure yields
a constant capital-labor ratio as a result. According to the Harrod model, capital scarcity or capital abundance will generally
prevail. Stable growth is a mere accident.
Subsequently, the assumption of a constant rate of interest is relaxed. The rate is now assumed to be dependent on the national
product and the money supply. This makes the model more flexible. Control of the growth rate of the money supply is then an
instrument in the hands of the monetary authorities for the purpose of preventing situations of capital scarcity or abundance.
In the case of capital scarcity, the growth rate of the money supply has to be raised. Paradoxically enough, the result of
this will be that the rate of interest rises. In a situation of capital abundance the opposite is true. A steady and stable
growth path is possible, because the monetary authorities are in a position to let the rate of interest take a value at which
full employment prevails.
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