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Weaving Cloth from Graziani’s Thread: Endogenous Money in a Simple (but Complete) Keynesian Model

Chapter

Abstract

One of Graziani’s main themes runs as follows. In order to finance production, the entrepreneur must obtain the funds necessary to pay his workforce in advance of sales taking place. Starting from scratch, he must borrow from banks, at the beginning of each production cycle, the sum which is needed in order to pay wages, creating a debt for the entrepreneur and, thereby, an equivalent amount of credit money, which sits initially in the hands of the labour force. Production now takes place and the produced good is sold at a price which enables the debt to be repaid inclusive of interest, while hopefully generating a surplus — that is, a profit — for the entrepreneur. When the debt is repaid, the money originally created is extinguished. An entire monetary circuit is now complete.

Keywords

Real Wage Real Income Nominal Wage Wage Bill Historic Cost 
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.

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References

  1. Backus, B. and T. Smith (1980) ‘A Model of US Financial and Non-Financial Economic Behaviour.’ Journal of Money Credit and Banking 12.Google Scholar
  2. Godley, W. (1996) ‘Money, Finance and National Income Determination: An Integrated Approach.’ Working Paper No. 167, Levy InstituteGoogle Scholar
  3. Graziani, A. (1985) ‘Interet monétaire et interet réel’ in Production, circulation et monnaie (Paris: Presses Universitaires de France).Google Scholar
  4. Hicks, J.R. (1989) A Market Theory of Money (Oxford: Clarendon Press).CrossRefGoogle Scholar

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© Wynne Godley 2012

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