The goods sector, non-financial services & disproportionality in financial sector size

Javidanrad, F., 2020. The goods sector, non-financial services & disproportionality in financial sector size. PhD, Nottingham Trent University.

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Abstract

Profit maximisation has always had a central role in all capitalist economies. At the macro level, however, the monetisation of this profit has remained a major theoretical puzzle through the modern history of economics since Marx first discussed it in the 19th Century. It is called the "paradox of monetary profit" or simply the "paradox of profit" and it generally refers to the impossibility of the realisation of profit for all profit-seeking companies/institutions when the total wages paid to all workers in the whole economy is lower than the total revenues they expect to receive.

Attempts to resolve the paradox have been proposed. Monetary circuitist theorists have suggested solutions, but these do not go beyond Marx’s "practical solution", in which more money is needed for the monetisation of profit over a fixed period. Theoretical solutions have also been proposed by some post-Keynesians, whereby the specific amount of credit/money in circulation (not extra injection) is enough to monetise the aggregate profit, but their solutions are defined in an infinite-period dynamic process which is not only in conflict with the core Keynesian monetary doctrine they presupposed. Further, it again a practical, rather than theoretical, solution.

The present theoretical study aims a) to provide a theoretical and intertemporal (but not infinite) solution in which the government has a central role in the redistribution of income, and b) to use the paradox to analytically elucidate the dynamic and gradual movement of capitalism from a productive economic structure to an unproductive financialised system in which a significant and disproportionate amount of profit can be made through money lending and speculating on the existing assets rather than through production.

To achieve the first aim, following the modern classification in economics, this study replaces "classes" in the initial form of the paradox with "sectors", namely the household, production, and financial sectors. Using an abstract and adjusted version of the Social Accounting Matrix (SAM), in combination with mathematical models of the monetary flows between the main sectors of an economy, this study sheds light on the shortage of money in circulation as the main characteristic of a profit-seeking monetary production economy, thus manifesting the validity of the paradox of profit. It will be shown that the paradox will disappear when the government sector acts as the main re-distributor of wealth following market distribution.

To achieve the second aim, this study goes further to show that in a credit-led monetary production economy the only practical remedy for the shortage of money in circulation is credit expansion, but this can only put the puzzle temporarily out of sight and at the cost of debt accumulation in favour of debt creators. This opens a new window to make a theoretical link between the shortage of money in circulation (as the manifestation of the paradox) and the continuing process of financialisation through the introduction of credit-debt reproduction mechanism in which, in a credit-led economy, credit creates debt above its initial level and more credit is needed to redeem the debt. So, in a credit-led and profit-seeking monetary economy in which the government sector is a reluctant observer of the income distribution by market forces, the paradox does exist and it provides a theoretical base for analysis of the process of financialisation. So, it would be wrong to associate financialisation with a specific period of capitalism. The birth of financialisation goes hand in hand with the presence of the profit-led monetary economy.

Item Type: Thesis
Alternative Title: An attempt to find an answer for the financialisation process in capitalism
Creators: Javidanrad, F.
Date: September 2020
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 22 Mar 2022 09:00
Last Modified: 22 Mar 2022 09:00
URI: http://irep.ntu.ac.uk/id/eprint/45939

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