Monetary circulation, the paradox of profits, and the velocity of money

Olivier Allain (1, 2)

1 UPD5 - Université Paris Descartes - Paris 5
2 CES - Centre d'économie de la Sorbonne

Recent papers have reconsidered the paradox of profits, that is the difficulty to explain how monetary profits can be generated when firms borrow only the wage bill to finance their production. In this article, we use a stock-flow consistent approach give a solution to this paradox assuming that, when firms sell goods at prices which exceed their unit costs, the realised monetary profits are not used to pay back banks. These profits then remain in the circuit, allowing additional transactions. In a sense, profits result from their own expenditure. According to this interpretation, the velocity of money is higher than one because some monetary units are used in several transactions of goods.

Mots clés: paradox of profits; circulation; endogenous money; velocity of money; stock-flow consistent approach

Domaines: Economies et finances

Olivier Allain. Monetary circulation, the paradox of profits, and the velocity of money. Third International Biannual Conference on “Post-Keynesian Economic Policies”, CEMF, Université de Bourgogne, Dijon, 29 Nov.-1 Dec. 2007, Dec 2007, Dijon, France. ⟨halshs-00196485⟩