A Monetary Explanation of Distribution in a Gold Money Economy

Abstract

A monetary explanation of distribution consists of the conception that the distribution of income between wages and profits is primarily determined by the money rate of interest on the basis as an institutionally determined policy variable, it systematically governs the rate of profit, which, for a given technique of production, determines the real wage as a residual of net income. This paper shows that consistent with a Sraffa model in which the real wage is not determined by the 'subsistence' of workers, a monetary explanation of distribution is as historically plausible in a gold money economy of , ‘old' nineteenth century capitalism as it is in a fiat money economy of 'modern' twentieth century capitalism. It is shown that such a explanation is logically different in a gold money economy to that which is proposed in a fiat money economy mainly because of the different manner in which the real wage (or price-wage ratio) is residually determined. The paper then examines the implications of this fundamental difference for the relationship between the interest rate, money wage bargaining and the price level in the two different kinds of monetary systems.