Credit and price determination in a developing economy

Abstract

This paper examines in the context of a developing agrarian economy aspects of the Post Keynesian theories of inflation caused by income distribution conflict and of endogenous money creation. It highlights the ability of large agricultural producers to set stocks at strategic levels to influence the price of agricultural goods (and hence the income distribution) and the ability of manufacturers to raise their profit margins. In both cases, access to credit is essential, thus forming the link to endogenous money theory. This gives monetary policy a critical role to play in a developing country’s pattern of income distribution.