Solving the Paradox of Monetary Profits

Keen, Steve

doi:10.5018/economics-ejournal.ja.2010-31

Cited by 28 publications

(5 citation statements)

References 13 publications

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“…In the TMC, money is created when a loan is made, and it is destroyed when the loan is paid back. Keen (2010) argues that a different characterization can be used through a 'revolving fund' where money created by banks is kept, without money destruction. In our view, this approach does not change the functioning of the circuit substantially.…”

Section: Discussionmentioning

confidence: 99%

Contributions in Stock-flow Modeling

Papadimitriou¹,

Zezza²

2012

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Section: Discussionmentioning

confidence: 99%

Contributions in Stock-flow Modeling

Papadimitriou¹,

Zezza²

2012

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“…The solutions to this class of under-specified problems will be examined in sections 1.4 and 1.5. The reader interested in the study of other explicit specifications of flows may look at [21] and To the best of our knowledge, the properties of random matrices that correspond to SFC models have not been established in the economics litterature. This representation calls for a closer examination following many works in the field of complex networks studies.…”

Section: Households Production Firms Banksmentioning

confidence: 99%

“…The solutions to this class of under-specified problems will be examined in sections 1.4 and 1.5. The reader interested in the study of other explicit specifications of flows may look at [21] and [22]. Lavoie and Godley examine many increasingly detailed models (open economy,...), as well as dynamic specifications of the flows 2 .…”

Section: Households Production Firms Banksmentioning

confidence: 99%

Volume of the steady-state space of financial flows in a monetary stock-flow-consistent model

Hazan

2017

Physica A: Statistical Mechanics and its Applications

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We show that a steady-state stock-flow consistent macro-economic model can be represented as a Constraint Satisfaction Problem (CSP). The set of solutions is a polytope, which volume depends on the constraints applied and reveals the potential fragility of the economic circuit, with no need to study the dynamics. Several methods to compute the volume are compared, inspired by operations research methods and the analysis of metabolic networks, both exact and approximate. We also introduce a random transaction matrix, and study the particular case of linear flows with respect to money stocks.In this article we propose an approach to macro-economic modeling inspired by stock-flow consistent (SFC) models [1] and statistical physics, solving a Constraint Satisfaction Problem (CSP) in a way similar to recent works in the field of metabolic networks [2]. The SFC framework provides accounting identities ensuring that "everything comes from somewhere and everything goes some where"[1, p.38], thanks to budget constraints and behavioral constraints. The formalism of DSGE (Dynamic Stochastic General Equilibrium) is dominant today in macro-economics, partly because the corresponding models can be written in the form of state-space models and estimated in a well-studied statistical framework 1 . Their usefulness has been widely debated among economists [4,5] and physicists [6] because of their inability to predict crises. Many of their hypotheses have been criticized, such as representative rational agents, exogeneity of financial factors, clearing markets where offer always meet demand, etc. . . Moreover, DSGE models usually do not implement SFC accounting identities.Most SFC works take place at the macroeconomic aggregate level. Various assets (loans, equities, bonds, . . . ) and sectors (households, firms, banks, states,. . . ) have been considered in the litterature [7]. Models can be more or less detailed, depending on the focus of the study (for example, the production sector can be aggregated or multi-sectoral). The issue of the micro-foundations of SFC models has been tackled with the combination of SFC and agent-based models (ABM). ABM [8,9] can represent large populations of heterogeneous agents, to explore the influence of networks effects, coordination, bounded rationality and learning. However, they do not usually implement stock-flow consistency. Recent works combine SFC and ABM [10,11,12], providing micro-foundations to SFC models, and imposing macro constraints to ABMs. Nevertheless, the computational cost of ABM simulations is high, and theoretical understanding is limited so far. Calibration and validation are known to be difficult problems.We consider a simplified stock-flow consistent model developed by macro-economists, where the state of the economy is the set of all stocks and flows of money. It is shown that one can compute the set of admissible steady-state configurations of this simple model. In this steady-state solution space, all configurations are equally weighted, thus allowing unusual states of ...

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“…There is no difference on this point with circuitists, or, for that matter, with heterodox attempts (e.g. (Correa, 2012), (Keen, 2010), (Bruun & Heyn-Johnsen, 2009), (Binswanger, 1996)).…”

Section: Profitmentioning

confidence: 99%

The Emergence of Profit and Interest in the Monetary Circuit

Kakarot-Handtke

2011

SSRN Journal

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Efficient progress of the monetary theory of production (MTP) is hampered by an unsatisfactory account of how profit and interest emerge in the monetary circuit. As matter of fact, this question puzzled already the classics. It seems evident that it cannot be answered by applying the usual tools. The present paper's purpose is to overcome the deadlock. This is done by setting the circulation approach on general structural axiomatic foundations. JEL B41, B59, E19, E40 Key words: new framework of concepts, structure-centric, axiom set, monetary circuit, quantity of money, transaction money, profit, distributed profit, rate of interest, profit ratio equalization "The existence of monetary profits at the macroeconomic (aggregate) level has always been a conundrum for theoreticians of the monetary circuit. If money is created from bank credit, how can we explain profits if firms borrow just enough to cover wages that are simply spent on consumption goods an returned to firms to extinguish their initial debt? Indeed, not only are firms unable to create profits, they also cannot raise sufficient funds to cover the payment of interest.

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Solving the Paradox of Monetary Profits

Cited by 28 publications

References 13 publications

Contributions in Stock-flow Modeling

Contributions in Stock-flow Modeling

Volume of the steady-state space of financial flows in a monetary stock-flow-consistent model

The Emergence of Profit and Interest in the Monetary Circuit

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