ABSTRACT
Neoclassical economics, the basis of mainstream economic analysis, has basic tenets giving no scope for a study of stock-flow relations in economic systems. So, the accumulation of wealth in economic systems as an issue is bypassed. Why and how does it disappoint us in studying creation of financial wealth? The neoclassical market exchange models at equilibrium, built not on the actual transaction flows but on desires to purchase and sell, do not have any scope for accumulation of stocks through the flows. As a corollary, there is neither a theory of production nor a theory of distribution compatible with it. Moreover, there is mingling of stocks and flows in the neoclassical valued added production function and factor endowment theories of trade. There is factually no theory of profits, although it speaks about ‘normal profit’ simultaneously with ‘maximisation of profits’. ‘Returns to capital’ is a catch-all term that covers interest, depreciation, and profits, all being charged for capital as a factor of production. For an alternative methodology, the historical roots of circuit idea and its revival in the theory of monetary circuit are probed, indicating how the paradox of profit needs to be solved using an open economic circuit construction.
