Money, growth, distribution and prices in a simple Sraffian economy

Abstract

It is well known that relative prices are determined by the profit rate in a Sraffa model. This paper follows Sraffa's suggestion about the determination of the profit rate: it closes the Sraffian model with a monetary sector. It is shown that the Central Bank, through its control of money supply growth, influences the profit rate and thus the long-run distribution of income and relative prices. Furthermore, it is shown that in a Ricardo-Von Neumann-Lewis world, the Central Bank controls the long-run growth rate of the economy.