The Monetary Theory of Production

The Monetary Theory of Production

The Monetary Theory of Production

The Monetary Theory of Production


In mainstream economic theory money functions as an instrument for the circulation of commodities or for keeping a stock of liquid wealth. In neither case is it considered fundamental to the production of goods or the distribution of income. Augusto Graziani challenges traditional theories of monetary production, arguing that a modern economy based on credit cannot be understood without a focus on the administration of credit flows. He argues that market asset configuration depends not upon consumer preferences and available technologies but on how money and credit are managed. A strong exponent of the circulation theory of monetary production, Graziani presents an original and perhaps controversial argument that will stimulate debate on the topic.


Over the last twenty years, mostly owing to research carried out by French and Italian scholars, a new formulation of monetary macroeconomics, the so-called 'Theory of the monetary circuit', also denominated 'The circulation approach' (Deleplace and Nell 1996), has been gaining ground. the basic theoretical tenets of the theory can be synthesised in three main propositions: rigorous distinction between banks and firms, endogenous determination of the money stock, and rejection of the marginal theory of distribution.

The circulation approach in the early Swedish
and German literatures

Under a strictly chronological criterion, the first description of a monetary circuit is found in Knut Wicksell's rightly celebrated monograph on Interest and Prices.

a general presentation of the circuit approach is contained in Lavoie 1987, Graziani 1989, Halevi and Taouil 1998. An implicit description of the circuit mechanism can be found in Bossone 2001. An excellent review and critical assessment of the post-Keynesian reading of the macroeconomic model is given by Arestis 1997, chapter 3. a detailed analysis of the concept of endogenous money and of the debate between accommodationists (supporters of endogenous money) and structuralists (accepting endogenous money only under severe qualifications) is contained in Fontana 2001.

Wicksell 1936 [1898], chapter 9, section B. in Wicksell's wake, the Swedish school has analysed the monetary circulation along the same

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