Monetary Economies of Production
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Monetary Economies of Production

Banking and Financial Circuits and the Role of the State

Edited by Louis-Philippe Rochon and Mario Seccareccia

The central focus of this book is the relationship between money, the sphere of production, and the State. It explores how best to adapt the fundamental ideas of the circulationist perspective to achieve a better understanding of the financialisation of the production processes within contemporary capitalist economies. Importantly, the expert contributors illustrate that the true challenge ahead is to address how these new emerging forms can be eventually tamed, a challenge that the recent financial crisis has forcefully proven essential.
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Chapter 5: Credit creation, the monetary circuit and the formal validity of money

John Smithin


There are three main sources for the argument of this chapter. The first is the work of Professor Alain Parguez, whose contributions we are honouring in this volume. Alain Parguez is a distinguished member of the late twentieth-century ‘Franco-Italian’ circuit school of monetary theory and, in particular, he has played a key role in communicating the insights from that perspective to like-minded economists in other traditions (Parguez 1996, 1999, 2011; Parguez and Seccareccia 2000). The second source is a brief reconsideration of the position of the leading representative of the ‘Austrian’ school of economics, in the famous Keynes–Hayek–Sraff a debate of the 1930s. This is a point of view diametrically opposed to that of the later ‘circuitistes’, and it would hardly be useful to enter into all of the intricacies of a debate of the early 1930s at this late date. However, there is one interesting point about Hayek’s style of argument that remains, and this is his use of numerical or arithmetical examples to make his case. This occurs, for example, in the paper ‘The “paradox” of saving’, which was a critique of the ‘under-consumptionist’ theories put forward by Foster and Catchings in the 1920s (Hayek 1995 [1931], pp. 96–118).

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