John Smithin

Moseley’s (2016) Money and Totality focuses on two important issues: (a) the nature and significance of Marx’s notion of the “circuit of money capital” and (b) the solution to the “transformation problem”. The former question, in particular, makes this book important not only for Marx specialists but also for other dissenting economists. Recall that in writings before the General Theory Keynes (1933a, 1933b), in particular, made allusion to the Marxian circuit via the concept of the monetary theory of production. However, these references did not survive in the published version in 1936. Nor was Keynes at all confident on this topic in debate the following year. It is therefore important to both Marx scholars and other heterodox economists to inquire exactly how the Marxian circuit was supposed to work. A starting point is to write out the scheme from Capital Vol. 2 (Marx, 1885/1976) in full, M – C … P … C’ – M’, and try to explain what the magnitudes (M’ – M) and (C’ – C), are supposed to represent. This is indeed one of Moseley’s main tasks in this thought-provoking book.

This paper discusses three puzzles about money and finance, having to do with the velocity of circulation, the Marxian concept of the monetary circuit and the deceptively simple question of whether there is enough money in existence at any point in time to purchase the full value of output. These issues take on particular significance at times of economic and financial crisis, but have often been neglected by the mainstream of the economics profession, leaving the field to Keynes’s ‘brave heretics’.

One of the main collective contributions of the various heterodox schools of monetary thought, such as circuit theory, Post Keynesian theory, modern money theory (MMT) and others, has been to stress the importance of the endogeneity of money via bank credit creation. It is necessary to stress the notion of a collective contribution because of the various claims and counter-claims to academic priority made in the literature. The recent exchange between T.I. Palley and E. Tymoigne and L.R. Wray in this journal provides a clear example of this. This response examines the differences between these writers in some detail.

This note provides an explanation of the relationship between the nominal and real lending rates of the commercial banks and central bank policy rates. It suggests that “a real interest rate rule” on the part of the central bank would influence the real lending rate perceived by commercial banks and their borrowers, and could affect the real economy via this route. There is a negative theoretical relationship between the inflation adjusted “real” lending rate and the rate of inflation itself.

The model of effective demand from Keynes’s General Theory was rendered graphically by such post-Keynesian scholars as Chick (1983), Davidson (2011), Davidson and Smolensky (1964), and Weintraub (1961). It has been criticized in detail by Patinkin (1976, 1982) and (implicitly) by the whole development of mainstream economics in the past seventy-five years. This paper shows that a version of the model can be rehabilitated simply by picking up on the idea from Kaldor (1983, 1985) that the underlying assumption should be a world of “imperfect competition,” rather than “perfect competition.” Samuelson (1996) later claimed that the Keynesian approach had rested all along on “imperfectly competitive micro-foundations,” but seemed to make no attempt to demonstrate this earlier (e.g, in Samuelson 1964).