The Keynesian Features of Graziani's Monetary Theory of Production and Some Unresolved Issues

Abstract

The aim of this article is twofold. First, it seeks to verify the elements of affinity between Graziani's approach to the Monetary Theory of Production and Keynes’ Treatise on Money and his General Theory. It is shown that two important theoretical elements, from the Treatise on Money, enter Graziani's basic schema, namely the view of endogenous money supply and the distribution process. At the same time, uncertainty and aggregate demand—conceived as a crucial variable in the General Theory—can play a significant role in the basic schema of the Monetary Theory of Production. Second, the article sets out a critical reconstruction of Graziani's basic schema emphasising the existence of ‘open issues’– such as bank behaviour and the ‘paradox of profits’—relating to internal and external inconsistencies.

Keywords:

• endogenous money
• Keynes
• monetary theory of production

JEL Codes:

• B22
• E12
• E40

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹Forges Davanzati and Patalano (2011), among others, discuss the points of affinity and divergence between the French and the Italian approaches.

²Lunghini and Bianchi (2004, p. 152) stress that the basic schema of the MTP is ‘neither a theory nor a model, it is a scheme as Quesnay's Tableau économique [ … ], Marx's reproduction schema, and Sraffa's equations in Production of commodities’.

³Cardim de Carvalho (2012a, p. 203, italics in original) stresses that ‘the classical approach contained a fundamental normative view of what should be the “correct” role of banks: in order to minimize the imbalances in the economy, they should act essentially as mere intermediaries between savers and investors'.

⁴One can observe that Keynes’ assumption of the TM contrasts with the basic schema of the MTP where the unitary money wage is supposed to be fixed.

⁵Graziani (2003, p. 20) maintains that, in the theoretical framework of the MTP, ‘the market does not guarantee full employment’ although he does not provide a clear explanation of why this should happen.

⁶This issue, connected with the MTP approach, is extensively analysed, among others, by Fontana (2009).

⁷Graziani's model considers the equities issued by firms. For the sake of simplicity, this variable will not be considered below. This will not alter the conclusions of the model.

⁸This does not mean that firms can fix the price level at whatever value. As shown by Bellofiore, Forges Davanzati and Realfonzo (2000), if workers’ expected real wage is significantly higher than the current real wage, social conflict is likely to occur, thus pushing firms to reduce prices.

⁹They also add ‘One thing, however, is clear: banks are always able to lend but may simply choose not to lend given the economic situation, or borrowers may not want to borrow either. This is a fundamental difference with the more mainstream interpretation of banks as financial intermediaries. For Post Keynesians, banks are generally constrained in their willingness to lend during a contraction, and by the availability of good borrowers during a boom; they are never constrained by a lack of deposits’ (Monvoisin and Rochon 2009; p. 51). See also Wolfson 1996; Rochon 1999; Rochon and Setterfield 2008).

¹⁰Moreover, in the basic schema, it is unclear which criterion firms adopt in order to decide how much consumption goods and how much investment goods to produce.

¹¹Note that it also violates the postulate that individual preferences do not matter. In fact, in the absence of a capitalist class at the beginning of the circuit, one must assume that some agents want to become entrepreneurs (presumably for their higher propensity to risk) and some agents want to become wage-earners.