MONEY, FINANCIAL ASSETS AND PASINETTI'S THEORY OF PROFIT

Abstract

The purpose of this paper is to introduce money and financial assets (shares) into Pasinetti's model, and investigate the effect of it on the rate of profit and on the condition for the coexistence of capitalists and workers.
Concerning the way of supplying money, we assume following two cases: (1) money is supplied by the government as the transfer payment; (2) money is supplied by the central bank in exchange for goods or shares. Concerning the demand function for money, we assume that the amount of money held as a medium of exchange depends on income, and the amount of money held as a store of value depends on assets value, so the demand for money depends on income and assets value.
In the case where capitalists and workers hold real capital and money, the rate of profit π is determined by the equation π=g/s_cj, in this equation, g is the rate of growth of the economy, s_cj is the ratio of increase of capitalists' capital to their profit, and s_cj depends on the way of supplying money and the demand function for money.
In the same way, we investigate the case where capitalists and workers hold shares and money. In this case, the rate of profit is determined by the finance equation of firms, and the rate of return on shares i is determined by the equation i=g/s_cj, in this equation, s_cj is the ratio of increase of capitalists' share value to their dividents and capital gain. Consequentry, in this case, the way of supplying money and the demand function for money affect the rate of return on shares through s_cj.