Parguez, the Monetary Circuit, and the Spread of Financialisation

Alain Parguez was a fierce opponent of “rentier-friendly” policies that dominated the neo-liberal era, which he saw as linked to the triumph of austerity, particularly after the mid-eighties, and for which the first seeds were planted in France before the Second World War. In the last quarter of the last century, neo-liberal policies undoubtedly dominated the scene in all main advanced countries, from the fall of the Berlin wall up to the Financial Crisis of 2008, and later. This historical period was characterized by an increased financialisation, which took the form of an accelerated growth of the financial sector of the advanced economies fed by inflation on the asset side of the financial balance sheet. In parallel, other phenomena accompanied this process such as a marked drop in real investment compared to the two previous decades, the progressive erosion of the welfare state, a general increase in inequalities, low inflation, and the rise of China as a world power among other developments. This article argues that Alain Parguez’s analytical contribution on the monetary circuit fills a substantial theoretical gap in the explanation of financialisation. This gap brought some critical authors to question the relevance of the concept and sometimes to deny its very existence. The main text of reference is the one Parguez wrote in 1996, which he considered as one of his most accomplished and relevant contributions. The present paper shows that this model develops the canonical version of the monetary circuit of Augusto Graziani in a direction that allows interpreting financialisation and other related phenomena likely to prevail in a non-Modigliani-Miller world. The monetary circuit, therefore, appears as one of the building blocks of an alternative economic paradigm that is much needed to address the challenges of our time.