“…In order to enable firms to repay credit plus interest in the final phase of the circuit, commercial banks have to inject an amount equal to firms' short-term interest payment obligations, either by means of buying firms' shares or bonds in the financial market (Bossone 2001), or by means of distributing this amount to bank owners (rentiers) who will then have to spend it in the financial or in the goods market. We may as well assume that interest payments on short-term initial credit of the present circuit will take place at the start of the next circuit -or during future circuits, as assumed by Rochon (2005).…”
Section: Endogenous Money Credit and Finance In A Monetary Circuitmentioning
“…In order to enable firms to repay credit plus interest in the final phase of the circuit, commercial banks have to inject an amount equal to firms' short-term interest payment obligations, either by means of buying firms' shares or bonds in the financial market (Bossone 2001), or by means of distributing this amount to bank owners (rentiers) who will then have to spend it in the financial or in the goods market. We may as well assume that interest payments on short-term initial credit of the present circuit will take place at the start of the next circuit -or during future circuits, as assumed by Rochon (2005).…”
Section: Endogenous Money Credit and Finance In A Monetary Circuitmentioning
“…24 As Febrero (2008, p. 118, my italics) views it: If banks only advance the cost of production of fixed capital, where does the money required to monetize the profits of the producer of investment goods come from? Neither Davidson (1978Davidson ( , 1986 nor Bossone (2001) noticed the problem. 25 Should the investment banker have difficulties to finance successful new issue flotations, Davidson (1986, p. 105 fn.…”
Section: Sergio Cesarattomentioning
confidence: 95%
“…between the financial‐market‐centred U.S. way of providing final finance (long‐term funding) and the more bank‐based structure of financing of the European model. While further research might be useful in this direction, the distinction put forward by Bossone () between banks and non‐bank financial intermediaries—which can be two separate departments, a monetary and a financial department, within the same bank (ibid, fn.12)—is sufficient for the present purposes: (a) Banks operate upstream in the circuit process. They allow the circuit to start by providing new liquidity to production.…”
Section: The Monetary‐production Multiplier Circuitmentioning
confidence: 99%
“… As Febrero (, p. 118, my italics) views it: ‘If banks only advance the cost of production of fixed capital, where does the money required to monetize the profits of the producer of investment goods come from?’ Neither Davidson () nor Bossone () noticed the problem.…”
One remarkable aspect of modern heterodox theory is the detachment between demand‐led growth models and endogenous money theories. This paper suggests a possible integration of the Keynesian theory of the multiplier (and supermultiplier) with endogenous money and Keynes's finance theories. Focussing upon Graziani's version of the Monetary Circuit Theory (MCT), the paper is a contribution towards reconciling the preoccupation of MCT with initial production financing, and the concern of demand‐side oriented heterodox growth theories with final financing of autonomous demand. Following Davidson, Dalziel and others, the paper shows that endogenous money finances production decisions based, inter alia, on expected consumption and investment orders. In turn, the income (super)multiplier generates actual consumption and saving. The latter funds the actual purchase of investment goods. The (super)multiplier is the nexus between initial and final finance. Various complications of this basic idea not yet considered by the literature are examined.
“…While, in fact, some consider banks as profit maximizing agents (see e.g. Bossone, 2001) others (see e.g. Palley, 1996;Rochon, 2006;Rochon & Rossi, 2007, Parguez, 2010 study the credit supply according to the expectations of banks on firms' performances and their creditworthiness (Note 3).…”
Section: The Monetary Theory Of Production: Some Brief Remarksmentioning
The paper aims to introduce ethical remarks into the monetary circuit (or monetary theory of production) approach in order to study the mechanism of money creation when banks discriminate production on an ethical plane. By the micro-foundation of the banks' and firms' behaviour, it will be shown that the ethical discrimination of firms by banks is implemented by the differentiation of the mark-ups on the loan rate and how this discrimination leads the system to create different credit markets according to the capacity (or willingness) of firms to satisfy (or not) the ethical claims of the banks.
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