The macro monetary model

Looking at the system as a whole this suggests a macroeconomic interpretation of the circuit of money. By writing the coefficient matrix A from (4.12) in terms of its constituent parts (see equation 2.20)  

The system can at this juncture be translated into money units by pre-multiplying throughout by p, the row vector of money prices  

A simplification is made possible by noting first that ph, the money value of per capita worker consumption, is the scalar wage rate w (under the assumption that workers do not save). And since wlX is the total wage bill, by decomposition if w = wlX/pX is the share of wages in gross income, 

Second, the scalar term representing money constant capital can be re-expressed as 

Equation (4.23) is comparable to a quantity equation in which 1/(1 c - w) is a term representing the velocity of money. To take an example given by Marx (1969a 341), say that 1,000 units of money circulate in the economy with a velocity of 3. The total price of commodities, or in the terminology of equation (4.23) the total income, is in this example 3,000. Dividing the income (3,000) by the velocity establishes the amount of money required to circulate (1,000). 

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The purpose of this chapter is to review particular aspects of these two interpretations of the reproduction schema in the light of the macro monetary model developed in previous chapters. How do these interpretations relate to our emphasis in the reproduction schema upon the importance of money, credit and the multiplier And what is the distinctive contribution of the macro monetary model relative to these golden age interpretations By re-interpreting these approaches through the lens of our macro monetary model, the objective is to explore in more depth the role of the reproduction schema in Marxian economic theory. 

These contributions of the Domar model can therefore be established for the general case in which prices deviate from values. Using the new interpretation it is possible to extend the macro monetary model to the consideration of expanded reproduction in a fully competitive economy. 

The book is thus a series of steps, from the multiplier and its role in the reproduction schema in Chapter 2 to the Kalecki principle in Chapter 3 and a detailed consideration of the circuit of money in Chapter 4. Having built up a macro monetary model of the reproduction schema, in which both money and aggregate demand are featured, Chapter 5 derives the Domar growth model from these analytical foundations. The relevance of this growth model to Marxian theories of crisis is explored and further developed in Chapter 6. 

A marked degree of clarity and accessibility is therefore offered by this application of the simple Keynesian multiplier to the circulation of money in a macro economy. In addition, Appendix 4 shows that the interindustry foundations of this model are consistent with Marx s value categories and his definition of investment. As a basis for future research, this macro monetary model is offered as a way of potentially improving communication between the Franco-Italian circuit school and the Marxian and Post Keynesian traditions. 

The purpose of this chapter is to consider how our macro monetary interpretation of the reproduction schema can be generalized into a model with price-value deviations. 

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