Advertisement

Money in the Circular Flow

  • L. Randall Wray
Part of the The Jerome Levy Economics Institute Series book series (JLEI)

Abstract

Money plays an important role in both the Post Keynesian and circuit theory approaches. In the circuit approach, macroeconomic identities and the logic of circular flows are emphasized. In this method, all values are in nominal terms; thus, money is analyzed according to the role it plays in these nominally valued circular flows. In contrast, most Post Keynesians have emphasized money as a stock and have paid particular attention to the impact rising liquidity preference has on circular flows. Some Post Keynesians, however, have also recognized that as all spending must be financed, the money supply must expand endogenously to finance a growing circular flow. In addition, Post Keynesians have tended to pay more attention to individual decision-making than have those who adopt the circuit approach. The most important difference between the two approaches, however, is probably the treatment of uncertainty. Because Post Keynesians are particularly concerned with ex ante decision-making, uncertainty plays a major role in their view. On the other hand, circuitistes tend to focus on ex post aggregate identities, where uncertainty plays no role. Thus, the different treatments of money in the two approaches can be attributed at least in part to a difference in emphasis over where analysis should begin.

Keywords

Money Supply Investment Good Wage Bill Forward Contract Circular Flow 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aglietta, M. (1995), ‘Systems Risks, Financial Innovations and the Financial Safety Net’, this volume.Google Scholar
  2. Arena, R. (1995), ‘Industrial and Financial Factors in Investment Decisions: A Significant Difference between Circuit and Post-Keynesian Approaches’, this volume.Google Scholar
  3. Bagehot, W. (1927), Lombard Street: A Description of the Money Market ( London: John Murray).Google Scholar
  4. Cesarano, F. (1990), ‘Law and Galiani on Money and Monetary Systems’, History of Political Economy, 22 (2), p. 321.CrossRefGoogle Scholar
  5. Chick, V. (1986), ‘The Evolution of the Banking System and the Theory of Saving, Investment and Interest’, Department of Economics, University College London, Discussion Paper No. 86–01.Google Scholar
  6. Chick, V. and S. Dow (1988), ‘A Post-Keynesian Perspective on the Relation Between Banking and Regional Development’, Thames Papers in Political Economy, Spring.Google Scholar
  7. Davidson, P. (1978), Money and the Real World ( London: Macmillan).CrossRefGoogle Scholar
  8. Davidson, P. (1995), ‘What Are the Essential Elements in Post Keynesian Monetary Theory?’, this volume.Google Scholar
  9. Dobb, M. (1963), Studies in the Development of Capitalism ( New York: International Publishers).Google Scholar
  10. Fisher, I. (1933), ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, 1, p. 337.CrossRefGoogle Scholar
  11. Foley, D. (1989), ‘Money in Economic Activity’, in J. Eatwell et al. (eds), The New Palgrave: Money ( New York and London: W.W. Norton ), p. 248.Google Scholar
  12. Goodhart, C. (1989), ‘Central Banking’, in J. Eatwell et al. (eds), The New Palgrave: Money ( New York and London: W.W. Norton ), p. 88.Google Scholar
  13. Graziani, A. (1990), ‘The Theory of the Monetary Circuit’, Economies et Sociétés, 7, p. 7Google Scholar
  14. Schmitt, B. and S. Greppi (1995), ‘The National Economy Studied as a Whole: Aspects of Circular Flow Analysis in the German Language’, this volume.Google Scholar
  15. Heinsohn, G. and O. Steiger (1983), ‘Private Property, Debts and Interest Or: The Origin of Money and the Rise and Fall of Monetary Economies’, Studi Economici, 21, p. 3.Google Scholar
  16. Heinsohn, G. and O. Steiger (1984), ‘Marx and Keynes: Private Property and Money’, Monnaie et Production, ISMEA, 1, p. 37.Google Scholar
  17. Heinsohn, G. and O. Steiger (1987), ‘Private Ownership and the Foundations of Monetary Theory’, Economies et Sociétés, 9, p. 229.Google Scholar
  18. Heinsohn, G. and O. Steiger (1989), ‘The Veil of Barter: The Solution to “The Task of Obtaining Representations of an Economy in which Money is Essential”’, in J.A. Kregel (ed), Inflation and Income Distribution in Capitalist Crisis: Essays in Memory of Sidney Weintraub ( New York: New York University Press ).Google Scholar
  19. Homer, S. and R. Sylla (1991), A History of Interest Rates ( New Brunswick and London: Rutgers University Press).Google Scholar
  20. Keynes, J.M. (1964), The General Theory of Employment, Interest, and Money ( New York and London: Harcourt Brace Jovanovich).Google Scholar
  21. Keynes, J.M. (1971), The Collected Writings of John Maynard Keynes, vol. V, ed. by D. Moggridge ( London: Macmillan).Google Scholar
  22. Keynes, J.M. (1979), The Collected Writings, vol. XXIX ( London: Macmillan ).Google Scholar
  23. Keynes, J.M. (1982), The Collected Writings, vol. XXVII ( London: Macmillan ).Google Scholar
  24. Keynes, J.M. (1987), The Collected Writings, vol. XIII ( London: Macmillan ).Google Scholar
  25. Knapp, G.F. (1924), The State Theory of Money ( London: Macmillan).Google Scholar
  26. Kregel, J.A. (1995), ‘The Policy Implications of the Current Bank Crisis; or “Is Free Market Capitalism Compatible with Endogenous Money?”’, this volume.Google Scholar
  27. Levine, D. (1983), ‘Two Options for the Theory of Money’, Social Concept, 1 (1), p. 20.Google Scholar
  28. Marx, K. (1909), Capital, vol. III ( Chicago: Charles H. Kerr ).Google Scholar
  29. McIntosh, M.K. (1988), ‘Money Lending on the Periphery of London, 1300–1600’, Albion, 20 (4), p. 557.CrossRefGoogle Scholar
  30. Minsky, H.P. (1978), ‘The Financial Instability Hypothesis: A Restatement’, Thames Papers in Political Economy, Thames Polytechnic.Google Scholar
  31. Moore, B.J. (1988), Horizontalists and Verticalists: The Macroeconomics of Credit Money ( Cambridge: Cambridge University Press).Google Scholar
  32. Moore, B.J. (1995), ‘The Money Supply Process: A Historical Reinterpretation’, this volume.Google Scholar
  33. Niggle, C.J. (1990), ‘The Evolution of Money, Financial Institutions, and Monetary Economics’, Journal of Economic Issues, 24 (2), p. 443.CrossRefGoogle Scholar
  34. Polanyi, K. (1971), ‘Aristotle Discovers the Economy’, in K. Polanyi et al. (eds), Trade and Market in the Early Empires ( Chicago: Regnery ), p. 64.Google Scholar
  35. Rousseas, S. (1995), ‘The Spheres of Industrial and Financial Circulation Revisited and their Implications for Post Keynesian Economic Policy’, this volume.Google Scholar
  36. Tooke, T. and W. Newmarch (1848), History of Prices and of the State of the Circulations, From 1792 to 1856, vols III and IV ( New York: Adelphi Press ).Google Scholar
  37. Wray, L.R. (1990), Money and Credit in Capitalist Economies: The Endogenous Money Approach ( Aldershot: Edward Elgar).Google Scholar
  38. Wray, L.R. (1991), ‘The Inconsistency of Monetarist Theory and Policy’, Economies et Sociétés, 11–12, p. 259.Google Scholar

Copyright information

© Ghislain Deleplace and Edward J. Nell 1996

Authors and Affiliations

  • L. Randall Wray

There are no affiliations available

Personalised recommendations