ABSTRACT
The general purpose of Duncan Foley model's "Liquidity-Profit Rate Cycles in a Capitalist Economy" was to explain the real interaction between capitalist firms and their economic environment. The driving force in this model's dynamics centers on the feedback between the financial and production decisions confronting firms. In D. Foley's model, credit-financed spending acts as a non-linear accelerator of aggregate demand. Foley's model sought to integrate the dynamics of finance with the cyclical growth of productive capital. Strikingly, Foley's model conceptual structure is rather unique as an example of heterodox models because it retains monetarist assumptions behind the external control of the money supply growth. In Foley's model, money capital is not a perfect substitute for productive capital, and the interest rate clears the market for loanable funds. A rise in liquidity will drive the interest rate down in relation to the rate profit. In neoclassical economics, the savings and investment schedules determine the interest rate.
