Credit money and Kaldor's 'institutional' theory of income distribution

This paper combines two major contributions by Kaldor: the view that the supply of money, ensuing mainly from bank credit, is endogenous, and the framework which assigns a crucial role to the saving and investment behaviour of corporations in determining the general rate of profit (the neo-Pasinetti theorem). Bank loans are introduced as another means of financing investment by firms, in addition to retained profits and the new issuance of shares. The proposed model provides a convenient framework in which two different approaches in the money-endogeneity view are classified. Kaldor's neo-Pasinetti theorem is shown to hold for only one of these approaches and is then extended to include the influence of banks.