Revenues from Financial Capital. A Formal Framework

The paper proposes a framework for a formal discussion of the sources of revenues which can be attributed to financial capital. The framework refers to individual units (firms, households, state institutions) and therefore allows for a representation of ownership relations. The framework distinguishes between central bank money and deposit money created by private banks and assumes an institutional setting in which the central bank is not permitted to directly finance state institutions. The paper considers a broad and a narrow definition of revenues. The broad definition includes revenues having origins in banks’ expansion of the money supply (in particular, revenues from new debts). Referring to this broad notion we find that the sum of these revenues has two sources: (1) revenues which public companies and investment funds receive from participating in the real economy (activities which aim to receive revenues from selling goods, services, and labor) and (2) the expansion of the money supply. The narrow definition includes only revenues from interest and from shares in public companies and investment funds. We find that the sum of these financial gains almost completely originates from revenues which public companies and investment funds receive from participating in the real economy.