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The monetary conditions for growth: Parguez’s debt stability condition

Banking and Financial Circuits and the Role of the State

Massimo Cingolani

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Massimo Cingolani

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Massimo Cingolani

Educated in the best Italian cultural and economic tradition, Augusto Graziani was a scholar of great finesse and erudition. These qualities come out clearly in Equilibrio generale ed equilibrio macroeconomico (1965a), interpreted here as the initial step in a process that eventually brought Graziani to the final rejection of methodological individualism and the reconstruction of microeconomics on macroeconomic bases achieved with The Monetary Theory of Production (2003). In his 1965 book, Graziani shows that, save for the Sraffian–Kaldorian heterodox alternative, extending Walras to dynamics in a multisectoral framework requires assumptions logically equivalent to those of single good models. This also points implicitly towards the need of interpreting the mainstream temporary equilibrium method in terms of path dependency when it refers to multiple sectors, and thus precludes that it converges towards a ‘plain’, long-term intertemporal general equilibrium. The latter is a notion generally associated with the name of Walras and early marginalists, but which owes much to later developments by Hayek, Lindahl and Hicks.

For the single period, Graziani's work on the monetary circuit can be read as an original variant of the monetary temporary equilibrium of Myrdal, where money and debt, combined with errors in exogenous expectations, explain the path-dependency of short-term equilibria. For continuation analysis, this is completed with insights from Wicksell, Schumpeter, Marx and Kalecki, whereby the circuit provides a simple explanation of the Keynesian fallacy of composition critique of microeconomics.

But the book is also an important contribution to an Italian debate on capital theory, which emerged mainly in Il Giornale degli Economisti in the 1960s, in parallel with the more cosmopolitan ‘two Cambridge capital controversies’ that developed at the same time in the top American and British journals. Both originated in Sraffa's famous 1960 contribution and should thus be examined together.