Monetary circuit

My analytical contribution is to show how the Harrod-Domar model -more specifically, its Domar variant - can be derived from the multisectoral reproduction schema, with the multiplier and the monetary circuit as the key building blocks. These building blocks are defined using Leontief s input-output analysis, a model which has its origins in the Marxian economic tradition. 

It is generally agreed that the most powerful model of the monetary circuit (Bellofiore and Realfonzo 1997 97) is that developed by Graziani (1989). This model has a distinct Marxian flavour. There is a class demarcation between workers and capitalists and, although intersectoral relationships are not fully explored, a distinction is made between consumer and... 

For Nell, this approach closely resembles the first of Marx s solutions in Capital, volume 2, to the problem of establishing where the money comes from to service the gap between the amount advanced by capitalists and the amount M they receive as income.2 As we saw in Chapter 3, Marx addresses this issue by positing that capitalists advance the amount M -M in addition to M. Under the Kalecki Principle, M —M is the amount of money cast into circulation by capitalists in order to realize profits. Ignoring for simplicity the role of capitalist consumption, this amount is required to purchase additional quantities of capital. Hence, capitalists advance the whole of M. On this view, theoretically, it is correct to speak of M becoming M, but in practice there is no initial sum of money, M, followed later by a larger sum, M there is only M (ibid. 207). In the single swap approach this advance of money is sufficient to fund total income in one run of the monetary circuit. 

It should be noted, however, that our application of the new interpretation does not imply that the traditional labour embodied definition of value should be completely abandoned. Foley (2000 30) is open to the possibility that there may be a role for both the new and traditional interpretations of the value of labour power. As Appendix 4 shows, the labour embodied definition of the value of labour power is nested in the input-output model of the circulation of money between departments of production, regardless of how prices are defined. The deviation of prices from values does not modify the constituent role of the labour embodied measure in the interindustry monetary circuit. It is only when a macroeconomic aggregation is developed under price-value deviations, and in the derivation of the scalar Keynesian multiplier, that a switch to the value-form definition is required. 

Trigg, A.B. (2004) Marx and the theory of the monetary circuit , Research in Political Economy, 21 143-60. 

Appendix 4 Surplus value and the interindustry monetary circuit... 

Similarly, for Nell (1998 206), the circuit approach in its contemporary form appears to owe its origin to Marx and for Graziani (1989 2), elements from the Marxian doctrine are surely present in the debates on the monetary circuit . 

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