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

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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.

I am grateful to Ken Coutts, Carluccio Bianchi, Marc Lavoie and Gennaro Zezza for comments on an earlier draft.

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References

  • Backus, B. and T. Smith (1980) ‘A Model of US Financial and Non-Financial Economic Behaviour.’ Journal of Money Credit and Banking 12.

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  • Godley, W. (1996) ‘Money, Finance and National Income Determination: An Integrated Approach.’ Working Paper No. 167, Levy Institute

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  • Graziani, A. (1985) ‘Interet monétaire et interet réel’ in Production, circulation et monnaie (Paris: Presses Universitaires de France).

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  • Hicks, J.R. (1989) A Market Theory of Money (Oxford: Clarendon Press).

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© 2012 Wynne Godley

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Godley, W. (2012). Weaving Cloth from Graziani’s Thread: Endogenous Money in a Simple (but Complete) Keynesian Model. In: Lavoie, M., Zezza, G. (eds) The Stock-Flow Consistent Approach. Palgrave Macmillan, London. https://doi.org/10.1057/9780230353848_5

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