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Monetising the Classical Equations: a theory of circulation

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  • Edward J. Nell

Abstract

The Classical Equations describe output and income in real terms. To use them to analyse aggregate demand, the transactions they describe must be 'monetised'. A sum of money equal to the wage bill of the capital goods sector can be shown to be necessary and sufficient to carry out all transactions, in a process of circulation which also defines an expression for velocity. When money has intrinsic value, the quantity approach may hold in the short run but, in the long run, money will be endogenous. In these conditions, the rate of interest will be determined by the supply and demand for reserves, but when money is purely nominal, only a minimum rate will be fixed, and the rate of interest will have to be pegged. The Appendix develops the Classical Equations and shows that they define an invariable unit of account. Copyright 2004, Oxford University Press.

Suggested Citation

  • Edward J. Nell, 2004. "Monetising the Classical Equations: a theory of circulation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(2), pages 173-203, March.
    • Handle: RePEc:oup:cambje:v:28:y:2004:i:2:p:173-203
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    Cited by:

    1. Olivier Allain, 2007. "Monetary circulation, the paradox of profits, and the velocity of money," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00196485, HAL.
    2. Edward Nell, 2010. "Interaction between Economic and Social Variables: The Transformational Growth Matrix," Chapters, in: Neri Salvadori (ed.), Institutional and Social Dynamics of Growth and Distribution, chapter 12, Edward Elgar Publishing.
    3. Yurii Lupenko & Svitlana Andros, 2021. "Influence of the Level of Economy Monetization and the Structure of Money Supply on Lending to the Enterprises of the Agricultural Sector," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 55-62, September.

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