[OPE-L:2020] money and circulating capital models

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Sun, 28 Apr 1996 20:39:46 -0700

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Steve K in [OPE-L:2015] wrote:

> I recently undertook that "pure theory" exercise, in an attempt to put
> Minsky's "Financial Instability Hypothesis" into a multi-sectoral
> framework. The system was a circulating capital only, no technical change,
> no population growth, no stocks, three class model (workers, bankers,
> capitalists) with multiple commodities and hence input-output relations.
> One of the side effects of this endeavour was the result that bankers'
> hoards, while being determined by the system, did not themselves
> determine anything else in the system. It was quite possible to commence
> with zero or even negative hoards, or to have negative hoards develop,
> without affecting the economy itself one zot.

Please explain the relevance and import of your assumptions, Steve.

By assuming a circulating-capital-only model, isn't the distinction
between money capital and industrial capital effectively obliterated?

How can a model without technical change or capital stocks be a model
that has relevance for capitalism? (except, via analogy, in the formal sense
that a model of simple reproduction has relevance for explaining extended

Of course, it is much easier to get results, in a determinate
mathematical sense, with such models (and linear economic models
generally). Yet, in what sense are they justified economically *except*
as a simplifying (and formal and abstract) case before examining fixed
capital, technical change, etc. (or as a critique of other theories)?

> The intuitive explanation for this state of affairs is that this model
> approximates a rural economy with moneylenders, <snip>

Even in a rural economy, fixed capital is required for production.

Even in a corn model, aren't means of production required to plant and
harvest corn?

In OPE-L Solidarity,