The Monetary Theory of Production

Federico Caffè Lectures

by Augusto Graziani

Augusto Graziani challenges traditional theories of monetary production, arguing that a modern economy based on credit cannot be understood without a focus on the administration of credit flow. Money functions as an instrument for the circulation of commodities or for keeping a stock of liquid wealth in mainstream economic theory. In neither case is it considered fundamental to the production of goods or the distribution of income. A strong exponent of the circulation theory of monetary production, Graziani presents an original and perhaps controversial argument which will stimulate debate.

Genres: Economics, Politics

188 pages, Paperback

First published September 3, 1999

Reviews

[Theodore Wright · Rating 4 out of 5]

This work is mainly an expansion and reaffirmation of the Schumpeterian and Kaldorian banking models. The basic premise of the circulation approach is that, assuming credit elasticity to be true, the decision to create a loan by a creditor opens a monetary circuit, once the loan is repaid the circuit is closed. Graziani's main focus is how purchasing power affects firms in the commodities market. He claims that both banks and firms simultaneously monitor levels of aggregate demand, so that firms can never truly lack purchasing power, as banks will supply them with loans on demand, contrary to the Neoclassical vision of banking. Firms then use a portion of these loans to expand output, taking up a larger share of the market in the process, which then grants them the liquidity necessary to repay the loan, therefore there is a noticeable difference in the purchasing power of individual agents and that of firms.