The monetary circuit

What sets this circuit approach apart is its institutionally relevant analysis of the relationship between banks, firms and workers. A model of the circuit of money is developed in which prime importance is placed upon the role of banks in financing industrial activities. Central to this approach is an application of the Kalecki principle, that capitalists earn what they spend the question being how an injection of money can circulate around the economy and return back to the capitalists. Moreover, how is this circuit of money intertwined with the activities of industrial sectors And how much money is required for the circuit to be complete Marx s reproduction schema provides a natural starting point for addressing these questions. 

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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. 

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

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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