Single-Period Analysis: Financial Markets, Firms’ Failures and Closure of the Monetary Circuit

The seminal contributions of Augusto Graziani (1982; 1984) to the monetary theory of production make it clear that the realisation of monetary gross profits of firms at the macroeconomic level represents the most intricate and awkward puzzle in the circuit approach. The analytical reason for this puzzle is simple: assuming a single macro period, isolated from those that precede and follow it, and a private pure credit economy, closed to foreign exchanges, the quantity of means of payment introduced into the economy at the beginning of the period coincides with the total debt of firms and with the wage bill; hence the total monetary revenues realised by the set of firms at the closure of the period will at most be equal to their initial debt and cannot account either for the existence of monetary profits or for the monetary payment of bank interest.1