chapter  5
14 Pages

Monetary theories of production

WithMarco Veronese Passarella

The view of capitalism as a circular and surplus-oriented sequence of interconnected (monetary) relationships of production, distribution, and trade has ancient roots. These can be traced back to the theory of the avances developed by French physiocrats in the eighteenth century. The pioneering physiocrat studies provided the ground for the ‘wage fund’ doctrine elaborated by David Ricardo (along with John R. McCulloch) in the nineteenth century. As stressed by Graziani (1989, 2003), Ricardo’s insights led to two opposing views of economy and society. On the one hand, the Ricardian take was seen to support the idea that an already accumulated ‘fund’ (be it corn or money) is necessary in order to undertake productive investment. As such, Ricardo’s approach laid the foundations for the neoclassical (or marginalist) theory of price and distribution, based on the concept of the (partial or general simultaneous) natural equilibrium and the loanable funds theory. This neoclassical interpretation of Ricardo prevails in current mainstream economics and the economic policy debate, underpinned by the microeconomic causality from saving to investment. On the other hand, a different rendition of the Ricardian theory was proposed in the twentieth century. This alternative view stresses the division of capitalist society into different and rival social classes, whose monetary interactions give rise to a sequential process of production, distribution, and trade. This conflictual, monetary, and macroeconomic interpretation of Ricardo was pioneered by Marx, particularly in the first four chapters of the second volume of Capital ([1885] 1978).