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The paradox of monetary profits: an obstacle to understanding financial and economic Crisis?

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  • Bruun, Charlotte
  • Heyn-Johnsen, Carsten

Abstract

The paradox of monetary profits has been a recurrent theme in macroeconomics since the problem was first formulated by Marx. Capitalists as a whole can at most get from workers, what they already paid out in wages. Marx did not solve this problem, and neither did Keynes, who had to face the problem in “The General Theory”. A consequential logical conclusion to Keynes’ treatment of the problem, leaves his concept of aggregate income indeterminate—based on imaginary magnitudes. Both Marx and Keynes tried to solve the problem by addressing current transaction flows, which is also the approach taken by more recent contributors. Another solution to the problem is to regard monetary profits as a flow arising from changes in stock magnitudes—more specifically the monetary valuation of real capital performed at financial markets. Besides solving the paradox of monetary profits, this solution also provides us with a very strong connection between the real and the financial spheres. The monetary profit inducing capitalist production, emanates from the sphere of finance. In a world of fundamental uncertainty this gives us an explanation of, not only what may drive financial booms and busts, but also how these movements on financial markets are related to the real sphere of production.

Suggested Citation

  • Bruun, Charlotte & Heyn-Johnsen, Carsten, 2009. "The paradox of monetary profits: an obstacle to understanding financial and economic Crisis?," Economics Discussion Papers 2009-52, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:200952
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    References listed on IDEAS

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    1. Patterson, K D & Stephenson, M J, 1988. "Stock-Flow Consistent Accounting: A Macroeconomic Perspective," Economic Journal, Royal Economic Society, vol. 98(392), pages 787-800, September.
    2. K. D. Patterson, 1990. "Stock Flow Consistent Income For Industrial And Commercial Companies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 36(3), pages 289-308, September.
    3. Jean-Francois Renaud, 2000. "The Problem of the Monetary Realization of Profits in a Post Keynesian Sequential Financing Model: Two solutions of the Kaleckian option," Review of Political Economy, Taylor & Francis Journals, vol. 12(3), pages 285-303.
    4. Claudio H. Dos Santos, 2006. "Keynesian theorising during hard times: stock-flow consistent models as an unexplored 'frontier' of Keynesian macroeconomics," Cambridge Journal of Economics, Oxford University Press, vol. 30(4), pages 541-565, July.
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    Cited by:

    1. Seppecher, Pascal, 2014. "Pour une macroéconomie monétaire dynamique et complexe," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 16.
    2. Javidanrad, Farzad, 2021. "Paradox of Monetary Profit, Shortage of Money in Circulation & Financialisation," The Warwick Economics Research Paper Series (TWERPS) 1365, University of Warwick, Department of Economics.
    3. Egmont Kakarot-Handtke, 2013. "The Emergence of Profit and Interest in the Monetary Circuit," World Economic Review, World Economics Association, vol. 2013(2), pages 106-106, February.
    4. de la Fonteijne, Marcel, 2013. "The Monetary Profit Paradox and a Sustainable Economy - A Fundamental Approach," MPRA Paper 55235, University Library of Munich, Germany, revised 10 Apr 2014.
    5. Julen Gonzalez-Redin & J Gareth Polhill & Terence P Dawson & Rosemary Hill & Iain J Gordon, 2018. "It's not the 'what', but the 'how': Exploring the role of debt in natural resource (un)sustainability," PLOS ONE, Public Library of Science, vol. 13(7), pages 1-19, July.
    6. Cornelia Metzig & Mirta Gordon, 2012. "Heterogeneous Enterprises in a Macroeconomic Agent-Based Model," Papers 1211.5575, arXiv.org.
    7. Kakarot-Handtke, Egmont, 2011. "What is wrong with heterodox economics? Kalecki’s profit theory as an example," MPRA Paper 31177, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary production theory; stock-flow consistency; finance; national income accounting;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • G01 - Financial Economics - - General - - - Financial Crises
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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