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It is not la vie en rose. New insights from Graziani’s theory of monetary circuit

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  • Marco Veronese Passarella

    (University of Leeds)

Abstract

The aim of this paper is twofold. First, it shows how a standard stock-flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of monetary circuit (TMC). Second, it aims at addressing some common mis- conceptions about the TMC. More precisely, it is argued that: a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; c) consumer credit is final finance, not initial finance; d) the paradox of profit is not a logical conundrum, but an abstract counterfactual that allows shedding light on a neglected role of government spending; e) overall, the TMC can be regarded as a “Marxian” rendition of Keynes’s method of aggregates.

Suggested Citation

  • Marco Veronese Passarella, 2022. "It is not la vie en rose. New insights from Graziani’s theory of monetary circuit," Working Papers PKWP2209, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2209
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    References listed on IDEAS

    as
    1. Eugenio Caverzasi & Antoine Godin, 2015. "Post-Keynesian stock-flow-consistent modelling: a survey," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(1), pages 157-187.
    2. Marc Lavoie, 2006. "A Post‐Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, May.
    3. Riccardo Bellofiore & Marco Veronese Passarella, 2016. "Introduction: the theoretical legacy of Augusto Graziani," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(3), pages 243-249, July.
    4. Riccardo Bellofiore & Marco Passarella, 2009. "Finance and the Realization Problem in Rosa Luxemburg: a ‘Circuitist’ Reappraisal," Palgrave Macmillan Books, in: Jean-François Ponsot & Sergio Rossi (ed.), The Political Economy of Monetary Circuits, chapter 6, pages 98-115, Palgrave Macmillan.
    5. Alberto Botta & Eugenio Caverzasi & Daniele Tori, 2015. "Financial–Real-Side Interactions in an Extended Monetary Circuit with Shadow Banking: Loving or Dangerous Hugs?," International Journal of Political Economy, Taylor & Francis Journals, vol. 44(3), pages 196-227, July.
    6. Augusto Graziani, 1997. "The Marxist Theory of Money," International Journal of Political Economy, Taylor & Francis Journals, vol. 27(2), pages 26-50, June.
    7. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, November.
    8. Riccardo Bellofiore & Guglielmo Forges Davanzati & Riccardo Realfonzo, 2000. "Marx Inside the Circuit: Discipline device, wage bargaining and unemployment in a sequential monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 12(4), pages 403-417.
    9. Malcolm Sawyer & Marco Veronese Passarella, 2017. "The Monetary Circuit in the Age of Financialisation: A Stock-Flow Consistent Model with A Twofold Banking Sector," Metroeconomica, Wiley Blackwell, vol. 68(2), pages 321-353, May.
    10. Jean-François Ponsot & Sergio Rossi, 2009. "The political economy of monetary circuits : tradition and change in post-keynesian economics," Post-Print halshs-00482625, HAL.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Theory of Monetary Circuit; Stock-Flow Consistent Models; Macroeconomics; Monetary Economics;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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