ABSTRACT
Whereas in a closed circuit every gain also means an equal amount of loss, or every asset created means creation of an equal amount of liability, the open-circuit framework helps explain the accumulation of wealth as financial capital. The sectoral balance sheets and flow accounts check the stock-flow consistency and show the creation of corporate nominal reserves of retained earnings as endogenous generation of financial capital. Given the stock of money, unrealised profit reflects on surplus production accumulating in stock of goods and corresponding accumulation of nominal reserves. The corporate production sector always stays at the edge of a crisis of monetising the surplus production and becomes money-hungry. It must sell the accumulating stock outside the circuit, but when it sells, the problem comes back on a larger scale. The circuit must keep on expanding. It is also highly fragile. The entire money in the circuit, being fully in circulation, cannot stay anywhere for long. The sources of the growth and dynamics of the circuit show that historically three conditions prevailed for its prosperity at the nascent stage – supply of labour from the colonies, wage-gap between the industrial and non-industrial sectors, and exploitation of the rest of the world through trade.
