The emergence of profit and interest in the monetary circuit

Kakarot-Handtke, Egmont (2012): The emergence of profit and interest in the monetary circuit.

Abstract

Efficient progress of the monetary theory of production (MTP) is hampered by an unsatisfactory account of how profit and interest emerge in the monetary circuit. As matter of fact, this question puzzled already the classics. It seems evident that it cannot be answered by applying the usual tools. The present paper’s purpose is to overcome the deadlock. This is done by setting the circulation approach on general structural axiomatic foundations.

• Item Type: MPRA Paper
• Language: English
• Keywords: new framework of concepts; structure-centric; axiom set; monetary circuit; quantity of money; transaction money; profit; distributed profit; rate of interest; profit ratio equalization; profit and interest puzzle
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E19 - Other; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B59 - Other; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology

References

Arrow, K. J., and Hahn, F. H. (1991). General Competive Analysis. Amsterdam, New York, NY, etc.: North-Holland.

Binswanger, M. (1996). Money Creation, Profits, and Growth: Monetary Aspects of Economic Evolution. In E. Helmstädter, and M. Perlman (Eds.), Behavioral Norms, Technological Progress, and Economic Dynamics, pages 413–437. University of Michigan Press.

Boylan, T. A., and O’Gorman, P. F. (2007). Axiomatization and Formalism in Economics. Journal of Economic Surveys, 21(2): 426–446.

Bruun, C., and Heyn-Johnsen, C. (2009). The Paradox of Monetary Profits: An Obstacle to Understanding Financial and Economic Crisis? Economics EJournal, Discussion Papers, (2009-52). URL http://www.economics-ejournal.org/ economics/discussionpapers/2009-52.

Correa, R. (2012). The Determination of Profits. World Economic Journal, Article Review Online. URL http://discussion.worldeconomicsassociation.org/?post=the-determination-of-profits. Accessed February 6th 2012.

Desai, M. (1989). Endogenous and Exogenous Money. In J. Eatwell, M. Milgate, and P. Newman (Eds.), Money, The New Palgrave, pages 146–150. London, Basingstoke: Macmillan.

Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL http://www.dictionaryofeconomics.com/article?id=pde2008_P000213.

Fontana, G., and Realfonzo, R. (2005). Introduction: The Monetary Theory of Production. Tradition and Perspectives. In G. Fontana, and R. Realfonzo (Eds.), The Monetary Theory of Production, pages 1–19. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.

Godley, W., and Lavoie, M. (2007). Monetary Economics. An Integrated Approach to Credit, Money, Income and Wealth. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.

Graziani, A. (1996). Money as Purchasing Power and Money as a Stock of Wealth in Keynesian Economic Thought. In G. Deleplace, and E. J. Nell (Eds.), Money in Motion, pages 139–154. Houndmills, Basingstoke, London: Macmillan.

Hall, R. E. (2011). The Long Slump. American Economic Review, 101(2): 431–469. URL http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.431.

Kakarot-Handtke, E. (2011a). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–32. URL http://ssrn.com/abstract=1841408.

Kakarot-Handtke, E. (2011b). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–25. URL http://ssrn.com/abstract=1917012.

Kakarot-Handtke, E. (2011c). The Pure Logic of Value, Profit, Interest. SSRN Working Paper Series, 1838203: 1–25. URL http://ssrn.com/abstract=1838203.

Kakarot-Handtke, E. (2011d). Reconstructing the Quantity Theory (II). SSRN Working Paper Series, 1903663: 1–19. URL http://ssrn.com/abstract=1903663.

Kakarot-Handtke, E. (2011e). Squaring the Investment Cycle. SSRN Working Paper Series, 1911796: 1–25. URL http://ssrn.com/abstract=1911796.

Kakarot-Handtke, E. (2011f). Trade, Productivity, Income, and Profit: The Comparative Advantage of Structural Axiomatic Analysis. SSRN Working Paper Series, 1970895: 1–23. URL http://ssrn.com/abstract=1970895.

Kakarot-Handtke, E. (2012). Taxes, Profits, and Employment: A Structural Axiomatic Analysis. SSRN Working Paper Series, 1995025: 1–23. URL http://ssrn.com/abstract=1995025.

Keen, S. (2010). Solving the Paradox of Monetary Profits. Economics E-Journal, 4(2010-31). URL http://dx.doi.org/10.5018/economics-ejournal.ja.2010-31.

Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan. (1936).

Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

Lavoie, M. (2003). A Primer on Endogenous Credit-Money. In L.-P. Rochon, and S. Rossi (Eds.), Modern Theories of Money, pages 506–543. Cheltenham, Northampton, MA: Edward Elgar.

Messori, M., and Zazzaro, A. (2005). Single-Period Analysis: Financial Markets, Firms’ Failures and Closure of the Monetary Circuit. In G. Fontana, and R. Realfonzo (Eds.), The Monetary Theory of Production. Tradition and Perspectives., pages 111–123. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.

Newlyn, W. T. (1971). Theory of Money. Oxford: Clarendon Press, 2nd edition.

Paraguez, A., and Seccareccia, M. (2000). The Credit Theory of Money: The Monetary Circuit Approach. In J. Smithin (Ed.), What is Money?, pages 101–123. London, New York, NY: Routledge.

Patinkin, D. (1989). Neutrality of Money. In J. Eatwell, M. Milgate, and P. Newman (Eds.), Money, The New Palgrave, pages 273–287. London, Basingstoke: Macmillan.

Renversez, F. (1996). Monetary Circulation and Overdraft Economy. In G. Deleplace, and E. J. Nell (Eds.), Money in Motion, pages 465–488. Houndmills, Basingstoke, London: Macmillan.

Rochon, L.-P. (2005). The Existence of Monetary Profits within the Monetary Circuit. In G. Fontana, and R. Realfonzo (Eds.), The Monetary Theory of Production. Tradition and Perspectives., pages 125–138. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.

Schmitt, B. (1996). A New Paradigm for the Determination of Money Prices. In G. Deleplace, and E. J. Nell (Eds.), Money in Motion, pages 104–138. Houndmills, Basingstoke, London: Macmillan.

Smithin, J. (1994). Controversies in Monetary Economics. Aldershot, Brookfield, VT: Edward Elgar.

Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL http://mpra.ub.uni-muenchen.de/20557/.

Wicksell, K. (1936). Interest and Prices. London: Macmillan.