A Macroeconomic Analysis of Profit Based on the observation of economic reality, this book provides for the foundations of a new structure of national payment systems Specifically, to this end, a rigorous accounting for money transactions, savings, and invested profit is suggested, with a major aim to settle sustainable lending levels Profit lies at the heart of economic activities Indeed, companies, from small to large, seek net gains to remunerate shareholders and to increase their assets Yet, economists are far from sharing a common theory of profit Using mathematical tools and a discursive approach, this book contributes to the debates in such regard, in the attempt to provide new answers to old economic issues What is macroeconomic profit? Is there any relationship between wages, lending, and profit? This book is an accessible resource for economists and financial experts as well as global economics students, researchers, academics, and historians alike It will challenge policy-makers and professionals and lead them on a thought-provoking journey through the realm of macroeconomics Andrea Carrera is Professor of Economics at Schiller International University, Madrid campus, Spain He has gained academic and business experience in both Europe and North America He has lectured on and authored a number of scientific articles in economics, and he has worked for large and medium-sized companies Andrea holds a PhD (Switzerland) and an MPhil (Spain) in economics He loves 20th-century history, languages, food, and hiking with good friends Routledge Frontiers of Political Economy Economics for an Information Age Money-Bargaining, Support-Bargaining and the Information Interface Patrick Spread The Pedagogy of Economic, Political and Social Crises Dynamics, Construals and Lessons Edited by Bob Jessop and Karim Knio Commodity The Global Commodity System in the 21st Century Photis Lysandrou Uncertainty and Economics A Paradigmatic Perspective Christian Müller-Kademann Discourse Analysis and Austerity Critical Studies from Economics and Linguistics Edited by Kate Power, Tanweer Ali and Eva Lebdušková The Dark Places of Business Enterprise Reinstating Social Costs in Institutional Economics Pietro Frigato and Francisco J Santos Arteaga Economic Woman Gendering Economic Inequality in the Age of Capital Frances Raday A Macroeconomic Analysis of Profit Andrea Carrera For more information about this series, please visit: www.routledge.com/books/series/SE0345 A Macroeconomic Analysis of Profit Andrea Carrera First published 2019 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 Andrea Carrera The right of Andrea Carrera to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Carrera, Andrea, 1986– author Title: A macroeconomic analysis of profit/Andrea Carrera Description: Edition | New York, NY : Routledge, 2019 | Includes bibliographical references and index Identifiers: LCCN 2018058380 (print) | LCCN 2018060582 (ebook) | ISBN 9781351213356 (eBook) | ISBN 9780815380351 (hardback : alk paper) | ISBN 9781351213356 (ebk) Subjects: LCSH: Profit | Wages | Loans | Banks and banking Classification: LCC HB601 (ebook) | LCC HB601 C327 2019 (print) | DDC 338.5/16—dc23 LC record available at https://lccn.loc.gov/2018058380 ISBN: 978-0-8153-8035-1 (hbk) ISBN: 978-1-351-21335-6 (ebk) Typeset in Sabon by Apex CoVantage, LLC Contents List of figures List of tables Foreword ALVARO CENCINI AND SERGIO ROSSI Foreword and acknowledgments ANDREA CARRERA Introduction 1 Money, production, and profit Bank money and the real economy Banks since the industrial revolution Interbank payments and the central bank What room for profit? 2 Classical and neoclassical theories of profit The old quest for the surplus Profit at the outset of the neoclassical theory Profit and contemporary neoclassical models The neoclassical theory of distribution 3 Keynes and Keynesian theories of profit At first, they were windfalls The importance of profit expectations ‘Orthodox’ versions of The General Theory Post-Keynesian theories 4 New directions in the theory of profit Wages and profit allocation Wages and invested profit Value of total output Profit and interest Profit and capital growth 5 Profit, lending, and banking reforms The bugbear of a new financial crisis The fragility of regional regulations Challenges to Basel III A reform of the system of national payments Conclusion Bibliography Name index Subject index Figures 1.1 Bank deposits 4.1 Deposits growth (per month, in dollars): an upward limit Tables 1.1 The stylized balance sheet of commercial banks 1.2 Wage payment and consumption 1.3 Interbank payments in absence of the central bank 1.4 Interbank payments and the central bank 1.5 The stylized balance sheet of central banks 1.6 Payment instruments in the United States 4.1 Wages and profit 4.2 Profit and unsalable output 4.3 Dividends, taxes, and interests 4.4 A way to investment 4.5 Wages in a multi-company economy (in millions of dollars) 4.6 Wages, prices, and profit in a multi-company economy (in millions of dollars) 4.7 Investment or distribution (1) 4.8 Investment or distribution (2) 4.9 Investment and distribution (1) 4.10 Investment and distribution (2) 4.11 The infinite horizon 4.12 Deposits growth (per month, in dollars): an upward limit 5.1 Consumer lending and inflation 5.2 Income and consumption (1) 5.3 Income and consumption (2) 5.4 Dividends, taxes, and interests 5.5 Investment 5.6 Department balances Foreword The existence of profits is a fact nobody can deny Yet, economists’ search for a satisfactory theory of profits has been going on for a long time, and it is only recently that a full explanation of their formation and expenditure has been provided The Classics, confronted with the law of exchange establishing the necessary equivalence between the terms of any relative exchange, could not explain the formation of positive profits in a way consistent with their labor theory of value If the exchange value of goods is determined by the labor necessary for their production, and if the payment of wages corresponds to the purchase of labor, no difference can ever occur between the amount firms pay to workers as wages and the amount firms earn through the sale of produced output For the Classics, the law of exchange takes the form of the necessary equality between values and prices, and if the payment of labor is identified with the purchase of produced output by firms, it is immediately clear that firms cannot derive any positive profit from the sale of this same output to consumers Purchased by firms at a price equal to its value expressed in labor terms, products can be sold to consumers only at the same price: profit is necessarily nil both for any single firm and for the set of firms Marx’s attempt to avoid this result by introducing a distinction between labor and labor power fails, because profit (surplus value), formed as the difference between the value of labor’s output and the value of labor power, takes the form of a stock of goods that is doomed to remain unsold The only income available in Marx’s system being equal to the value of labor power, namely to what we would call today the value of wage-goods, profit-goods, which are obtained at zero cost by firms thanks to surplus labor, are unsalable The logical impossibility to explain the monetary realization of surplus value calls thus for the rejection of Marx’s ingenious attempt to explain profit as a surplus value and confirms the difficulty of reconciling the law of exchange with the existence of profit The law of exchange is also at the center of Walras’s general equilibrium analysis, which is logically incompatible with the existence of firms’ profits In general equilibrium, prices are equal to costs, and firms cannot derive any positive profit from the sale of their products The economy analyzed by Walras and his followers is an economy of exchange, which implies the essential unity between the market for products and the market for productive services As is the case of the market for products, where produced goods are purchased by consumers, on the market for productive services the latter are purchased by firms: in general equilibrium analysis, every monetary transaction is a purchase It thus follows that firms act as simple intermediaries between two kinds of purchases Coddington, Alan 147 Cohen, Daniel 55, 147 Colwell, Stephen 25 Compaijen, Bernard 80, 147 Condorcet, Marie N 18, 160 Cooper, Andrew S 23, 147 Cooper, Thomas 25 Copeland, Jack B 147 Coppock, Dennis J 21, 147 Cottin-Euziol, Edouard 85, 147 Cournot, Antoine Augustin 51 Cowell, Frank A 147 Cuthbert, Anna xx Damiris, Niklas xix Davenport-Hines, Richard 65, 147 Davidson, Paul 46, 84, 147, 148 Deane, Phyllis M 41, 43, 46, 148 Debreu, Gérard 51, 143, 148 De Gottardi, Curzio 52, 59, 162 Deleplace, Ghislain xvii 148, 151, 154, 157, 161, 162, 165 De Roover, Raymond A 41, 148 Desai, Meghnad J xviii, 10, 146, 148 Dewatripont, Mathias F 112, 163 Diamond, Peter A 56, 148 Dieterlen, Pierre xvi Dimand, Robert W xix, 65, 70, 71, 148 Dobb, Maurice H xvi, 42, 43, 46, 79, 148, 158, 159, 163 Dodd, Christopher J 7, 111, 112, 113, 114, 115, 140, 158 Domar, Evsey D 55, 76, 77, 78, 148 Dornbusch, Rudiger 21, 148 Douglas, Paul H 59, 60, 147, 148, 163 Dow, Sheila C 84, 148 Ducros, Bernard xvi Eatwell, John L 65, 145, 148, 150, 151 Edgeworth, Francis Y 55, 70 Eichenbaum, Martin S 58, 147 Eichengreen, Barry J 22, 148 Eicher, Jean-Claude xvii Euler, Leohnard 103 Febrero, Eladio 84, 85, 149 Fels, Rending 21, 149 Ferguson, Charles E 80, 149 Fischer, Stanley 56, 145 Flamant, Maurice xvi Flandreau, Marc 22, 148 Fleming, Sam 124, 149 Flitter, Emily 115, 158 Foley, Stephen 109, 154 Fontana, Giuseppe xviii, xix 70, 82, 145, 150, 159, 160, 162 Forstater, Mathew 16, 150 Franco, Francisco 76 Frank, Barney 7, 111, 112, 113, 114, 115, 140, 158 Friedman, Milton B 10, 24, 150, 156, 159, 160, 164 Galbraith, James K 55, 150 Galbraith, John K 41, 42, 150 Galì, Jordi 75, 145 Gallatin, Albert 25 Gallaway, Lowell 80, 150 Galpern, Steven G 23, 150 Garegnani, Pierangelo xvi 46, 48, 80, 150 Garzia, Carmine xix Georgescu-Roegen, Nicholas 93, 150 Giles, Chris 124, 149 Gillray, James 20 Glasner, David 21, 150 Glass, Carter 27, 28 Gnos, Claude xvii 84, 85, 150, 151 Godley, Wynne 96, 151 Goetz-Girey, Robert xvi Goodhart, Charles A E 28, 29, 151 Gordon, Robert 55, 151, 164 Gouge, William M 25 Gramm, William P 28 Graziani, Augusto 10, 75, 151, 165 Green, Jerry R 51, 60, 155 Greenspan, Alan 28 Gregory, David 124, 145 Gregory, Theodore E 124, 145 Guitton, Henri xvi Hagenauer, Selma 41, 151 Hague, Douglas C 153 Hahn, Frank H 156 Hamilton, Alexander 24 Hamouda, Omar F 73, 151 Hansen, Alvin H 74, 138, 151 Hansen, Gary D 58, 151 Hansson, Björn A 79, 151 Harcourt, Geoffrey C 76, 79, 144, 151 Harris, Jonathan M xix Harrod, Roy F 55, 74, 77, 78, 138, 151, 152 Hawtrey, Ralph G 65 Hayek, Friedrich A 69, 70, 101, 152, 153 Hicks, John R 51, 73, 74, 75, 80, 81, 96, 97, 138, 144, 151, 152, 161, 165 Hirschman, Albert O 55, 152 Hooper, Samuel 25 Houssiaux, Jacques xvi Hughes, Jonathan R 21, 152 Humphries, Andy xx Jackson, Andrew 24, 25 Johannessen, Jon-Arild 21, 152 Johnson, Matthew S 108, 143 Jopson, Barney 115, 152 Kahn, Richard F xvi, 65, 66, 68, 69, 71, 72, 152 Kaldor, Nicholas xvi 48, 75, 76, 77, 78, 79, 80, 82, 83, 84, 96, 138, 152, 153, 157 Kalecki, Michal 71, 79, 85, 96, 153, 158 Karagiannis, Nikolaos 160 Keefer, Edward C 23, 150 Keen, Steve 110, 153 Kelton, Stephanie 82, 153 Keynes, John M v, x, xi, xiii–xvii, 5, 10, 12, 13, 27, 39, 52, 54, 55, 57, 61, 63–86, 96, 100, 101, 103, 135, 138, 139, 144, 145, 147, 148, 150–65 Khomeini, Ruhollah S 23 Kim, Yun K xix King, John E 77, 78, 79, 153 King, Robert G 58, 76, 145, 153 King William III 20 Koopmans, Tjalling 56, 59, 153 Kregel, Jan A 80, 153 Kriesler, Peter 76, 144, 151 Krugman, Paul R 10, 153 Kunz, Diane B 23, 153 Kurz, Heinz D 80, 154 Kydland, Fynn E 58, 154 Lange, Oskar R 73, 74, 138, 154 Lautenschläger, Sabine 119 Lavoie, Marc xix 82, 84, 85, 96, 108, 151, 154 Leach, James A 28 Leijonhufvud, Axel 74, 138, 154 Levhari, David 80, 154 Litan, Robert E 108, 143 Locke, John 24 Long, John B 58, 154 Lord, Eleazar 25 Lowell, Francis C 25 Lowenstein, Roger 24, 154 Lucas, Robert E 57, 75, 154, 164 Lutz, Friedrich A 153 Maciejewski, Edouard xix MacMillan, Hugh P 65, 66 Madison, James 24 Major, John 23 Malthus, Thomas R 46, 76, 158 Manibog, Claire 109, 154 Mankiw, Nicholas G 54, 58, 74, 154 Marchal, Jean xvi Marcotti, Ludovica xix Marshall, Alfred 51, 65, 67, 155 Marx, Karl ix, xiii, xviii 4, 34, 42, 47, 48, 49, 137, 146, 150, 155, 159 Mas-Colell, Andreu 51, 60, 155 McHenry, Patrick T 123 McKenna, Reginald 66 Meade, James E 66, 74, 80, 138, 155 Meek, Ronald L 43, 155 Meltzer, Allan H 10, 145 Mercillon, Henri xvi Milgate, Murray 65, 145, 148, 150, 151 Mill, James 46, 70 Miller, Merton H 124 Minsky, Hyman P 84, 110, 155 Mints, Lloyd W 24, 25, 26, 155 Mirante, Amalia xv, xix 76, 80, 82, 83, 84, 144 Mishan, Ezra J 55, 155 Mishkin, Frederic S 56, 155 Miyazaki, Koichi 80, 144, 155 Modigliani, Franco 56, 73, 74, 75, 80, 124, 138, 153, 155, 156, 157, 161 Moggridge, Donald E 64, 65, 66, 67, 69, 70, 72, 153, 156 Monvoisin, Virginie xix Moore, Basil J 84, 156 Mosak, Jacob L 51, 156 Mosler, Warren 82, 156 Mossé, Robert xvi Musella, Marco 151 Musson, Albert E 21, 156 Myrdal, Karl G 52, 156 Naceur, Sami B 109, 156 Neal, Larry 21, 156 Nell, Edward J xvii, 82, 84, 85, 148, 151, 153, 154, 156, 157, 161, 162, 165 Newman, Peter 145, 151 Nielsen, Mette 124, 145 Nixon, Richard M 27 Norman, Montagu C 22 Ohlin, Berthil G 52, 156 Olawoye, Salewa xix Opdyke, George 25 Orphanides, Athanasios 57, 156 Pahlavi, Reza M 23 Palley, Thomas 82, 84, 157 Panico, Carlo 151 Papademos, Lucas D 73, 74, 75, 156, 157 Pareto, Vilfredo 55, 158 Parguez, Alain 10, 84, 151, 157 Parkin, Michael 75, 157 Partnoy, Frank 109, 157 Pasinetti, Luigi L xvii, xix, 41, 42, 45, 46, 49, 50, 51, 61, 62, 63, 65, 70, 75–83, 138, 144, 155, 157, 158, 161, 162, 163 Paterson, William 20 Patinkin, Don 159 Paysden, Michael xix Peacock, Alan T 55, 158 Peel, Robert 21 Pezzini, Silvia 124, 145 Phelps, Edmund S 10, 75, 158, 159 Pigou, Alfred C 67, 70 Piketty, Thomas 55, 143, 147 Pitt the Younger, William 20 Plosser, Charles I 58, 154 Poggio, Gabriel L xx Polanyi-Levitt, Kari xix Ponsot, Jean-Franỗois 150, 158, 159 Porta, Pierluigi xix 46, 158, 163 Prescott, Edward C 58, 154, 158 Puttaswamaiah, Karigirappa 144 Quah, Danny 76, 145 Queen Mary II 20 Queen Victoria 21 Quesnay, Franỗois 41, 42 Radia, Amar 145 Raguet, Condy 25 Ramsey, Frank P 56, 58, 158 Rappeport, Alan 115, 158 Realfonzo, Riccardo xviii 10, 70, 82, 145, 150, 158, 159, 160, 162 Renaud, Jean-Franỗois 84, 158 Ricardo, David xvi 4, 41–8, 52, 61, 70, 76, 78, 100, 125, 127, 137, 144, 158, 159, 163 Robbins, Lionel C 22, 159 Robertson, Dennis H xv Robinson, Austin E 66, 69, 159 Robinson, Joan V xvi, 16, 48, 66, 72, 73, 79, 80, 81, 82, 85, 86, 159, 161 Rochon, Louis-Philippe xviii, xix 5, 10, 82, 84, 85, 145, 146, 147, 150, 151, 154, 157, 159, 160, 162, 165 Rodrigues, Jason 20, 21, 22, 159 Romer, Christina D 22, 160 Romer, David H 54, 58, 73, 74, 75, 160 Romer, Paul M 57, 59, 160 Roncaglia, Alessandro 71, 160 Roosevelt, Franklin D 27 Rossi, Sergio v, xiv, xv, xviii, xix 10, 11, 13, 14, 17, 31, 70, 84, 88, 89, 90, 104, 126, 128, 129, 131, 133, 143, 145, 146, 150, 154, 158, 159, 160, 162, 165 Rotemberg, Julio J 160 Rothbard, Murray N 22, 160 Rothschild, Emma G 18, 19, 20, 160, 161 Roulet, Caroline 109, 156 Rowley, Charles K 55, 158 Saint-Paul, Gilles 55, 147 Salvadori, Neri 80, 154 Sametz, Arnold W 155 Samuelson, Paul A 46, 73, 74, 80, 138, 144, 153, 161 Sánchez González, Julián xix, xx Sandelin, Bo 164 Sato, Kazuo 80, 161 Sau, Lino xix Sawyer, Malcolm xviii, xix 150, 154, 160 Say, Jean-Baptiste 4, 43, 44, 45, 100, 137, 161 Scazzieri, Roberto xvii 150, 152, 157, 161 Schäuble, Wolfgang 110, 147 Schmitt, Bernard xi–xviii 8, 10, 13, 38, 40, 48, 49, 50, 52, 59, 93, 103, 111, 125, 127, 129, 135, 139, 141, 143, 146, 159, 161, 162 Schumpeter, Joseph A 41, 93, 151, 162 Schwartz, Anna J 10, 24, 150 Seccareccia, Mario xix 82, 84, 151, 154, 159, 162, 165 Sen, Amartya K xvi, 55, 161, 162 Serrano, Paul xx Shesinski, Eytan 80, 146 Shukla, Vishwa 80, 150 Skidelsky, Robert J 65, 162 Skingsley, Cecilia 36 Skinner, Andrew S 162 Slater, Samuel 25 Smith, Adam xvi, 4, 10, 17, 18, 24, 34, 41, 42, 43, 44, 47, 52, 100, 137, 148, 155, 160, 162 Smith, Vera C 28 Smithin, John 85, 162 Solow, Robert M xvi, 12, 54, 56, 57, 59, 60, 77, 80, 81, 156, 158, 162, 163 Somerset, James 18 Spaltro, Marco 124, 145 Spiethoff, Arthur 70 Spulber, Daniel F 75, 146 Sraffa, Piero xvi 46, 66, 82, 158, 159, 163 Stamp, Josiah C 66, 163 Steagall, Henry B 27, 28 Steil, Benn 27, 163 Steuart, James x 44, 137, 163 Strong, Benjamin 27 Swan, Trevor W 56, 163 Sylos Labini, Paolo 60, 163 Taylor, John B 10, 75, 158, 163 Terzi, Andrea xix 82, 163 Theal, Carol xix Tirole, Jean 112, 163 Tobin, James 57, 65, 84, 163, 164 Tooke, Thomas 47 Tsakalotos, Euclid 118, 119, 164 Tucker, George 25 Tullio, Servio 10 Turgot, Jacques A R 18, 160 Ullmo, Jean 51, 52, 164 Ussher, Leanne xix Vallet, Guillaume xix Vercelli, Alessandro 57, 164 Vernengo, Matías 157 Vethake, Henry 25 Volcker, Paul A 28, 113, 115, 149 Vreeland, Edward B 26 Walker, Amasa 25 Walras, Marie-Esprit-Léon ix, x, xiii 4, 5, 39, 42, 49, 50, 51, 52, 53, 55, 58, 61, 70, 73, 74, 75, 81, 137, 138, 152, 164 Washington, George 24 Wayland, Francis 25 Wheatley, Alan 10, 36, 164 Whinston, Michael D 51, 60, 155 White, Harry D 27, 115, 123, 163 Wicksell, Johan K 61, 63, 84, 102, 103, 138, 145, 164 Wieczner, Jen 38, 165 William the Conqueror 10 Willis, Parker H 27 Wilson, Woodrow 27 Wood, Adrian J 43, 48, 86, 165 Wood, John C 73, 165 Woods, Ronald N 73, 165 Wray, Randall L 82, 165 Wright, Orville 24 Wright, Wilbur 24 Yellen, Janet L 75, 123, 143 Yergin, Daniel 23, 165 Zamagni, Stefano 161 Zamagni Negri, Vera 18, 165 Zazzaro, Alberto 84, 165 Zezza, Gennaro 84, 165 Subject index American: civil war 25, 26, 151; industrial revolution v, 18, 19, 24, 25; political revolution 18, 24 balance sheet of central and commercial banks viii, 3, 10, 11, 12, 13, 17, 31, 34, 35, 37, 44, 77, 87, 104, 121, 122, 123, 127, 128, 130, 131, 132, 133, 134, 147, 149 bank: central v, viii, xiii, xviii, 3, 8, 9, 11, 18, 19, 20–37, 76, 103, 104, 110, 122, 136, 140, 148, 149, 151, 154, 155, 159, 160; commercial viii, 2, 3, 8, 9, 10, 11, 18, 19, 20, 23, 26, 28, 29, 31, 34, 37, 87, 109, 127, 136, 149, 163; of England 3, 9, 19–23, 25, 28, 29, 32, 124, 143, 145, 159; European Central 28, 110, 115–23, 140, 148, 149; Federal Reserve 3, 9, 11, 23–31, 33, 34, 35, 36, 37, 110, 112, 113, 123, 149, 154, 156, 158, 164; intermediation xiii, 2, 3, 5, 15, 16, 30, 39, 105, 125, 126, 127; for International Settlements 22, 33, 119–22, 143, 144, 145; of Italy 35, 109, 119, 144; reform vi, xiv, xvii, 8, 26, 27, 28, 64, 108, 110, 111, 112, 114, 125, 127, 129, 134, 140, 141, 145, 146, 153, 158, 161; of Sweden 3, 9, 10, 19, 34, 36, 119; World 15, 27, 165 banking: central and commercial xiii, 1, 2, 3, 7, 9, 11, 13, 14, 15, 18, 19, 20, 21, 23, 25, 27, 28, 29, 35, 36, 37; reforms 98, 105, 108–35, 137, 140, 145, 148, 149, 150, 151, 154, 155, 156, 158, 159, 160, 163, 164, 165; supervision 23, 112–21, 123, 145, 148, 149 Basel Accords vi, 7, 111, 119, 120, 121, 122, 123, 124, 140, 143, 144, 145, 148, 156 Bretton Woods 27, 163, 164 Bureau of Consumer Financial Protection 113, 114, 115, 147 capital vi, xiii, xiv, xvii, xviii, 6, 15, 16, 17, 34, 41, 45, 46, 47, 48, 49, 52, 53, 56, 58, 60, 61, 62, 63, 65, 66, 68, 69, 72, 77, 80, 81, 82, 83, 85, 86, 90, 93, 96, 100–5, 107, 111, 114, 116, 117, 120–5, 127, 129, 130–4, 136–41, 143, 145, 146, 148, 150–5, 159–65 cash 3, 9, 10, 11, 32, 34–8, 121, 136, 149, 163, 164 classical economics v, xiii, 4, 34, 39, 41–63, 70, 73, 76, 77, 78, 81, 83, 88, 100, 125, 135, 137, 138, 139, 145, 155, 156 clearing and settlement 8, 26, 27, 28, 29, 32, 33, 34, 113, 143, 144 companies (firms) viii–xiv, 1, 3, 11, 12, 13–18, 20, 25, 29, 32, 33, 38, 39, 51–4, 56, 59, 63, 69, 79, 85, 87–92, 94–9, 104, 105, 107, 113, 125, 126, 127, 128, 131, 132, 134, 136, 137, 139, 140, 151, 157 Consumer Financial Protection Bureau 113, 114, 115, 147 consumption viii, xi, 2, 3, 6, 9, 10, 12–17, 58, 59, 60, 69, 71, 72, 82, 85, 94, 95, 96, 98, 100–5, 107, 110, 126–9, 133–6, 139 controversy in capital theory 80–3, 138, 145, 151 credit (lending) 2, 3, 7, 8, 11–17, 19, 20, 21, 28, 29, 32, 33, 35, 36, 37, 85, 87, 88, 89, 94, 96, 102–12, 114, 115, 118, 121, 123, 123–8, 130–7, 141, 145, 147, 149, 151, 152, 154, 156, 157, 163, 164 crisis vi, xv, 7, 20–3, 28, 65, 108, 109, 110, 112, 114, 115–24, 140, 143, 145, 147, 148, 150, 152, 153, 156, 157 currency 3, 5, 9, 21, 27, 29, 34, 35, 36, 112, 113, 114, 119, 120, 135, 136, 156 demand 10, 15, 17, 22, 26, 34, 35, 50, 55, 56, 58, 71, 74, 76–9, 100, 103, 104, 127, 145, 155, 163 department (monetary, financial, capital) viii, 111, 127, 128–34, 141 deposits: bank vii, viii, 6, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 26, 27, 29, 30, 33, 34, 35, 37, 69, 87, 88, 90, 95, 97, 100, 101, 112, 113, 115, 116, 118, 120, 125, 126, 127, 130, 131, 132, 136, 140; growth vii, 104–7 dividends viii, 2, 6, 38, 53, 54, 84, 87, 89, 95, 97, 98, 100, 103, 107, 130, 132, 133 Dodd-Frank Act 7, 111–15, 140, 158 European: banking union 7, 110, 115, 116, 117, 118, 119, 140, 148, 149, 164; Central Bank 28, 110, 115–23, 140, 148, 149; Exchange Rate Mechanism 23; Financial Stability Facility 118; Stability Mechanism 118 exchange ix, x, xi, xii, 1, 10, 20, 23, 26, 27, 32, 33, 35, 39, 40, 42, 43, 46–51, 57, 90, 113, 129, 137, 145, 159 Federal Deposit Insurance Corporation 112, 113, 120 Federal Reserve System 3, 9, 11, 23–31, 33, 34, 35, 36, 37, 110, 112, 113, 123, 149, 154, 156, 158, 164 Financial Stability Oversight Council 112 foundations of economics xiv, xvii, 84, 90, 93, 146, 150, 152, 154, 155, 157, 158, 161, 162, 164 free banking 26, 28, 29 Global Financial Crisis xv, 7, 23, 28, 108, 109, 110, 112, 115, 116, 117, 120, 121, 124, 140, 143, 147, 157 Great Depression 7, 22, 108, 145, 147, 156, 159, 160 growth vi, vii, viii, xvi, 5, 6, 28, 53–63, 72, 76, 77, 79, 80, 81, 82, 85, 87, 96, 104, 106, 107, 109, 115, 124, 125, 137, 140, 144, 145, 146, 148, 150, 151, 152, 153, 155–60, 162, 163 households 2, 3, 5, 6, 9, 13, 15, 16, 17, 18, 19, 28, 30, 31, 35, 36, 38–41, 56, 59, 60, 62, 78, 87–91, 93–102, 104, 108, 111, 124, 126–39 income viii–xiv, xviii, 2–5, 9–18, 29–40, 45, 46, 47, 49, 52–6, 59–67, 70–9, 83, 85, 87–108, 114, 115, 125–39, 143–7, 151, 156, 157 industrial: activities; revolution in Europe; revolution in the UK; revolution in the USA v, 18, 19, 24, 25 inflation viii, xiv, xvii, xviii, 22, 23, 27, 29, 30, 66, 67, 68, 71, 126, 127, 129, 141, 143, 156–62, 164 interest vi, viii, xiv, 22, 28, 41, 52–5, 62–5, 70, 73, 84, 87, 89, 93, 95, 97, 100–4, 107, 110, 113, 130, 132, 133, 137, 139, 140, 145, 152, 153, 154, 155, 157, 162, 163, 164 International Monetary Fund 10, 23, 27, 36, 119, 145, 164 investment viii, xiii, xiv, xvii, 2, 5, 6, 8, 21, 28, 40, 59, 60, 66–72, 76–9, 85–7, 90, 94–8, 100–5, 110, 118, 119, 121, 130, 132, 133, 134, 139, 140, 145, 152, 162 Italian lira redemption 35 justum pretium 41, 151 Keynesian traditions v, x, xi, xiii, xiv, xv, xvi, xvii, 5, 10, 12, 13, 27, 39, 52, 54, 55, 57, 61, 63–86, 96, 100, 101, 103, 135, 138, 139, 144, 145, 147, 148, 150–65 Liquidity Coverage Ratio 121, 122 macroeconomics xi, xiv, xvii, xviii, xix, 3, 6, 58, 71, 73, 76, 84, 88, 90, 91, 92, 93, 97, 103, 104, 134, 135, 137, 138, 139, 140, 141, 143, 145, 146, 148, 153, 154, 156, 157, 160, 161, 162, 164 mercantilism 41 microeconomics xii, 6, 38, 51, 57, 84, 97, 135, 139, 155, 158, 165 money v, x, xi, xii, xiii, xiv, xvii, xviii, 1–40, 43, 47, 49, 50, 52, 56, 57, 58, 63–71, 74, 82, 83, 84, 87, 103, 109, 110, 115, 125–8, 130, 132, 133–9, 145–8, 150–65 neoclassical traditions v, xiii, xiv, xv, xvi, 4, 5, 39, 41–63, 67, 70, 73–6, 80, 81, 84, 137, 138, 145, 148, 150, 157, 161, 163 Net Stable Funding Ratio 121, 122, 144 Office of Financial Research 112 Office of the Comptroller of the Currency 112, 113, 114, 156 output vi, viii, ix–xiii, 1–4, 6, 10–15, 38, 39, 42, 46, 48, 50, 51, 54–61, 65, 68–71, 73–8, 80, 82, 88, 89, 90, 92, 94, 95, 98–101, 104, 105, 118, 127, 129, 135, 138, 139, 148, 157, 164 payment v, vi, viii, ix, xi, xii, xiii, xvii, xviii, 1, 2, 3, 6, 8–14, 16, 17, 19, 27–34, 36, 37, 38, 53, 54, 89, 93, 96, 98, 104, 105, 111, 113, 119, 125, 127–30, 132–7, 141, 143, 144, 146, 149, 160, 164 Physiocrat economics 42, 43, 45 production v, ix, x–xiv, xvii, xviii, 2, 3, 6, 9–42, 45, 48, 50, 51, 52, 54, 55, 56, 58–62, 65–8, 70, 71, 73, 76, 80, 81, 82, 85, 87–95, 97–105, 126, 127, 131, 132, 135, 136, 139, 140, 144–7, 149, 150, 151, 154, 156, 159–63, 165 profit ix–xv, xvii, xix, 1–8, 9, 13, 15, 30, 37–55, 59, 60, 62–73, 75–107, 111, 125, 127, 128, 130–3, 135–41, 144, 146, 149, 153, 155, 156, 157, 158, 159, 161, 164, 165 public sector xvi, 2, 56, 65, 84, 85, 87, 108, 110, 139 purchasing power x, xi, 35, 67, 108, 126, 127, 128 quantitative easing 110, 149 regulation vi, 7, 8, 28, 32, 56, 108, 110–17, 119, 120, 123–6, 140, 141, 163 rent 2, 4, 43, 44, 46, 61, 62, 65, 97, 102, 130, 132, 147 savings xiv, 3, 5, 7, 8, 9, 16, 24, 56, 60, 66, 67, 68, 71, 77, 78, 79, 80, 94–7, 99, 101, 104, 111, 113, 126, 127, 129, 132, 141, 151, 155, 156, 158 scholastics 41 social classes 12, 42–5, 61, 64, 83, 84, 87 taxes viii, 2, 56, 87, 89, 95, 97, 100, 107, 130, 132, 133 trade 5, 10, 18, 19, 21, 25, 42, 109, 136, 139, 152, 156 value vi, ix, x, xii, xiii, 10, 11, 12, 14, 15, 16, 33–7, 39–42, 45–52, 61, 68, 72, 78, 81, 87, 88, 90, 92, 94, 95–105, 107, 108, 115, 117, 121, 122, 123, 127, 130, 131, 132, 134, 138, 139, 146, 148, 155, 157, 158, 159 Volcker Rule 113, 115, 149 wages v, viii, xiii, 1, 2, 4, 5, 6, 9, 11–17, 35, 37–41, 43, 44, 46–9, 55, 59, 61, 62, 65, 66, 67, 71–5, 77, 78, 79, 82–5, 87–105, 127, 128, 130–3, 135–9, 143, 148, 165 welfare economics 55, 143 World War I 5, 22, 27, 160 World War II 22, 27 Yom Kippur War 23 ... invested profit Value of total output Profit and interest Profit and capital growth 5 Profit, lending, and banking reforms The bugbear of a new financial crisis The fragility of regional regulations... easy What is the nature of any corporate gain? What is the nature of the overall amount of profits? Profits are made in money, and no objection can be raised against this fact However, it is also... amount of assets and the amount of liabilities on any balance sheet must always match This means that the value of assets is always equal to the value of liabilities Now, it is no mystery that