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Weaving Cloth from Graziani’s Thread: Endogenous Money in a Simple (but Complete) Keynesian Model

In: The Stock-Flow Consistent Approach

Author

Listed:
  • Wynne Godley

Abstract

One of Graziani’s main themes runs as follows. In order to finance production, the entrepreneur must obtain the funds necessary to pay his workforce in advance of sales taking place. Starting from scratch, he must borrow from banks, at the beginning of each production cycle, the sum which is needed in order to pay wages, creating a debt for the entrepreneur and, thereby, an equivalent amount of credit money, which sits initially in the hands of the labour force. Production now takes place and the produced good is sold at a price which enables the debt to be repaid inclusive of interest, while hopefully generating a surplus — that is, a profit — for the entrepreneur. When the debt is repaid, the money originally created is extinguished. An entire monetary circuit is now complete.

Suggested Citation

  • Wynne Godley, 2012. "Weaving Cloth from Graziani’s Thread: Endogenous Money in a Simple (but Complete) Keynesian Model," Palgrave Macmillan Books, in: Marc Lavoie & Gennaro Zezza (ed.), The Stock-Flow Consistent Approach, chapter 4, pages 81-89, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-35384-8_5
    DOI: 10.1057/9780230353848_5
    as

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