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An inconsistency in using stock flow consistency in modelling the monetary profit paradox

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  • de la Fonteijne, Marcel
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    Abstract

    In order to understand from where the profits or monetary profits of capitalists and firms emerge the author examined the phrase of Marx, 'Die Gesamtklasse der Kapitalisten kann nichts aus der Zirkulation herausziehen, was nicht vorher hineingeworfen war.' (The class of capitalists cannot extract from the circulation, what has not previously been thrown in.) Also Keen studied the monetary paradox and contrary to circuitists he came to the conclusion that capitalists can make monetary profit with a possibility to earn enough to repay their debt and with positive balances for all actors. The author will prove that Keen made a fundamental mistake and is using the Stock Flow Consistency Principle in an inconsistent way by combining it with behavior equations in a dynamic model. So the solution presented here is not only showing that the numbers are incorrect but the method itself. This resolves a contraction between Keen and circuitists and implies that, in a Wicksellian pure credit economy, it remains impossible to gain a monetary profit for all actors. More precisely that the total sum of monetary profit over all actors is zero. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2014-3.

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    Date of creation: 2014
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    Handle: RePEc:zbw:ifwedp:20143

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    Keywords: monetary profit paradox; stock flow consistency; circuit theory; endogenous money; Wicksellian pure credit economy; social norms; cognitive costs; laboratory experiments;

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