Circuit with Multi-period Credit

Cottin-Euziol, Édouard; Rochon, Louis-Philippe

doi:10.1080/09538259.2013.807672

Cited by 10 publications

(6 citation statements)

References 5 publications

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“…Although long-term bank credits have increased demand in the past, they will decrease it in the future when these loans have to be repaid. The repayment of past bank credits will then modify the dynamics of the economy, as has been highlighted in some recent studies (Cottin-Euziol 2015; Cottin-Euziol and Piluso 2021; Cottin-Euziol and Rochon 2013). If the amount of repayment is denoted as A , and assuming that firms make these repayments on their profits, we obtain the situation shown in figure 5.…”

Section: Refutations Of Say’s Law In a Monetary Economy Of Production...mentioning

confidence: 88%

“…These injections can then enable them to sell their entire production with a given margin. The second solution assumes that credits can be issued over several periods and therefore do not have to be fully repaid within the period considered (Cottin-Euziol and Rochon 2013; Rochon 2009). However, in both cases, according to Renaud (2000: 301), “in the real world, the conditions for this realization [of profits] can only be satisfied accidentally.” Revenues and expenditure are then likely to be lower than the supply price of production.…”

Section: Refutations Of Say’s Law In a Monetary Economy Of Production...mentioning

confidence: 99%

“…However, other research contributions have been made to explain the existence of a gap between revenues and the supply price of production. According to Cottin-Euziol and Rochon (2013) and Cottin-Euziol and Piluso (2021), the repayment of the principal of past bank credits used to finance investments represents a cost for firms generating no revenues and can explain the existence of a gap between revenues and the supply price of production. Another refutation can be linked to the work of Le Héron and Cottin-Euziol (2021), which examines how firms finance their working capital on their profits rather than by short-term bank credits.…”

Section: Introductionmentioning

confidence: 99%

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Refutations of Say’s Law and Dynamics of a Monetary Economy of Production

Cottin-Euziol¹

2023

Review of Radical Political Economics

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In a monetary economy of production, Say’s law is invalid for several reasons. Based on some refutations, it is possible to state that revenues generated by the production process are structurally lower than the supply price of production, which means that firms create insufficient purchasing power to buy what they produce. Herein, we study the dynamics of such an economy and obtain two main results. First, the long-term debt level of that economy must increase during a growth phase to enable demand to grow at the same pace as supply. Second, because of the repayment of this debt, the gap between supply and net revenues generated by the production process widens along a growth phase. JEL Classification: E12, E2, E30, E42, G21

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Section: Refutations Of Say’s Law In a Monetary Economy Of Production...mentioning

confidence: 88%

Section: Refutations Of Say’s Law In a Monetary Economy Of Production...mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Refutations of Say’s Law and Dynamics of a Monetary Economy of Production

Cottin-Euziol¹

2023

Review of Radical Political Economics

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“…The first phase of the circuit begins with the demand for bank credit. According to Parguez (1980) and Cottin-Euziol/ Rochon (2013), credit is needed to cover both the costs associated with the production of goods, and also to purchase capital goods (investments). In this sense, credit is both short-term (production) and longer-term (investment).…”

Section: The Different Phases Of a Period Within An Mct Modelmentioning

confidence: 99%

The reflux phase in monetary circuit theory and stock–flow consistent models

Cottin-Euziol,

Bougrine,

Rochon

2024

European Journal of Economics and Economic Policies: Intervention

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Stock-flow consistent (SFC) modelling and monetary circuit theory (MCT) have many similarities. However, an important difference concerns the reflux phase, during which the credits issued by banks are repaid. This phase is constitutive of MCT models, but does not generally appear explicitly in SFC models. The authors propose here to develop an SFC model in which the bank loans issued at the beginning of a period are explicitly repaid at the end of it. The repayment of long-term bank loans financing investments will then represent a leakage outside the monetary circuit and affect the level of aggregate demand and the dynamics of the model. The authors show that considering these repayments could have a lasting effect on corporate profits, corporate indebtedness, and growth of production. This result suggests that it could be interesting to focus more on the reflux phase within SFC models, taking inspiration from MCT.

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“…Recent studies have shown that, in such an economy where investments are financed by bank credits issued on several cycles of production, the repayment of these credits should be regarded as an outflow outside the economic circuit (Rochon, 2009;Cottin-Euziol, 2013;Cottin-Euziol et Rochon, 2013). Indeed, as the repayment of a bank credit is equivalent to a destruction of money, interests excluded, the corresponding spending does not flow back to the economic circuit.…”

Section: Introductionmentioning

confidence: 99%

The repayment of bank credits having financed investments in the Domar model

Cottin-Euziol

2015

BKR

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In the Domar model, based on the Keynesian multiplier theory, investment generates savings. Therefore, savings cannot fund investments, at least ex ante. Investments have first to be financed by bank credit, hence the question on their repayment. In this article, we suppose that investments are financed by bank credits issued on several periods, as it typically takes years for firms to reimburse their investment debt. What we then obtain is that, in order to avoid an overproduction crisis, the rate of capital accumulation has to gradually rise throughout a growth phase. This result paves the way to a theory of cycles based on the repayment of bank credits.

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Circuit with Multi-period Credit

Cited by 10 publications

References 5 publications

Refutations of Say’s Law and Dynamics of a Monetary Economy of Production

Refutations of Say’s Law and Dynamics of a Monetary Economy of Production

The reflux phase in monetary circuit theory and stock–flow consistent models

The repayment of bank credits having financed investments in the Domar model

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