The Economics of Financing Firms : Two Different Approaches

Abstract

Up to a few years ago, macroeconomic theory did not pay any attention to the topic of firm financing, This situation has changed in recent years thanks to the development of a theoretical approach that has applied the conclusions of information economics to the analysis of the working of the financial markets. This approach does not constitute the only theoretical framework which gives prominence to the issue of firm finance; a meaningful theory could be elaborated on the basis of the works of Keynes and Schumpeter. The aim of this paper is to highlight the most significant differences between these two approaches; it will be shown that the distinctive element of the asymmetric information approach is the return to the principle of the neutrality of financial variables. In contrast, the Keynes-Schumpeter approach underlines that bank money, banks and credit market are elements that mark an economy that is completely different from the pure exchange economy to which the principle of the neutrality of the financial variables is applied. The paper shows the reasons why the Keynes-Schumpeter approach seems more suitable to analyse the evolution of modern economies.