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Monetary circulation, the paradox of profits, and the velocity of money

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  • Olivier Allain

    (UPD5 - Université Paris Descartes - Paris 5, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Recent papers have reconsidered the paradox of profits, that is the difficulty to explain how monetary profits can be generated when firms borrow only the wage bill to finance their production. In this article, we use a stock-flow consistent approach give a solution to this paradox assuming that, when firms sell goods at prices which exceed their unit costs, the realised monetary profits are not used to pay back banks. These profits then remain in the circuit, allowing additional transactions. In a sense, profits result from their own expenditure. According to this interpretation, the velocity of money is higher than one because some monetary units are used in several transactions of goods.

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  • Olivier Allain, 2007. "Monetary circulation, the paradox of profits, and the velocity of money," Post-Print halshs-00196485, HAL.
    • Handle: RePEc:hal:journl:halshs-00196485
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00196485
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    References listed on IDEAS

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    1. Olivier Allain, 2009. "Effective Demand and Short-term Adjustments in the General Theory," Review of Political Economy, Taylor & Francis Journals, vol. 21(1), pages 1-22.
    2. Alberto ZAZZARO, 2002. "How Heterodox is the Heterodoxy of the Monetary Circuit Theory? The Nature of Money and the Microeconomy of the Circuit," Working Papers 163, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Gennaro Zezza, 2004. "Some Simple, Consistent Models of the Monetary Circuit," Macroeconomics 0405006, University Library of Munich, Germany.
    4. Louis-Philippe Rochon & Sergio Rossi (ed.), 2003. "Modern Theories of Money," Books, Edward Elgar Publishing, number 2506.
    5. Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
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    Keywords

    paradox of profits; circulation; endogenous money; velocity of money; stock-flow consistent approach;
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