1. In recent years, post-Keynesian economics has been dominated by two uncoordinated streams of thought: neo-Kaleckian (NK) growth models and monetary circuit theory. The paper is an attempt to overcome the shortcomings of both, in view of a well-organised analysis of economic growth in a monetary economics.

2 The paper takes for granted that the Sraffian Supermultiplier (SM), as increasingly recognised, is the most promising heterodox growth model, also in view of the shortcomings of the NK models. According to these models, growth is led by animal spirits (certainly not the best Keynes’ legacy) or by endless attempt to recover a normal degree of capacity utilisation (and a normal profit rate). The SM is an extension of the Keynesian multiplier with an accelerator function. In this model, growth is led by the autonomous components of AD.

3. The paper moves from the necessity to complement the SM approach with endogenous money theory. More specifically, autonomous components of demand must be financed by newly created purchasing power since, by definition, they do not depend on “earned income”. For instance endogenous credit-money creation concerns: autonomous consumption based on consumers’ credit; exports financed by endogenous money creation either in the importing country or by vendor finance by the exporting country; State spending which takes place before taxation and saving (Chartalist and Post-Chartalist views); investment which only ex post is funded by saving.

4. So far, endogenous money theory has been incorporated by post-Keynesian growth theory in two directions: according to the first (that the paper names “received view”), endogenous money directly finances autonomous demand and investment; according to the second, monetary circuit view, it finances final production decisions.

(a) the “received view” is implicit, for instance, in Sraffian authors (and more generally in the Keynesian literature). It does not take into account, however, that most production is based on expected demand or purchase orders, so that credit often finances production, not final demand.

(b) the second view is proper to the monetary circuit theory (MCT); this theory suffers, however, of many well-known problems and, moreover, is not explicitly based on a demand-led theory of output determination.

The paper will try to merge the two approaches moving from Keynes’s distinction between initial and final finance (or funding), as developed by Davidson, Dalziel, Graziani and others. The final objective is to merge the concept of initial and final finance and a supermultiplier-based theory of demand-led growth.

The paper will take stock of and develop some work in this direction already done by the author, also in view of some suggestive hints from Claudio Borio (chief economist at BIS).

References

Cesaratto, S. Initial and final finance in the monetary circuit and the theory of Effective Demand. 2016, Metroeconomica (forthcoming).

Cesaratto, S. The State Spends First: Logic, Facts, Fictions, Open Questions, Journal of
Post Keynesian Economics, 2016, 39 (1), 44-71.

Borio, C. and Disyatat, P. (2011), Global imbalances and the financial crisis: Link or no link? BIS Working Papers no. 346.