Monetary Policy and Income Distribution: The Post-Keynesian and Sraffian Perspectives

Abstract

ABSTRACT This paper examines the post-Keynesian and Sraffian perspectives on the relationship between monetary policy and income distribution, highlighting their endogenous demand-led money approach and rejection of the neutrality of interest rates, and monetary policy as tool of redistribution among social classes. Both approaches acknowledge that the central bank can influence interest rates and hence, the functional distribution of income. These shared ideas recognize the political nature of interest rates and the distributive impacts of monetary policy. Although all are crucial common points, some differences persist; PK theory often emphasizes the impact of monetary policy on rentiers vs. non-rentier classes, while Sraffians focus more on wage earners vs. non-wage earners. Further, while PK theorists advocate for alternative monetary policy rules, Sraffians favor discretionary policy tailored to each economy's unique institutional framework. The paper concludes by suggesting that these shared critical conceptions, despite minor differences, should stimulate collaborative efforts to further develop heterodox theories of monetary policy and income distribution.