The Emergence of Profit and Interest in the Monetary Circuit

Abstract

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.