Monetary circuit theory

[5] The notion and terminology of a money circuit dates at least to 1903, when amateur economist Nicholas Johannsen wrote Der Kreislauf des Geldes und Mechanismus des Sozial-Lebens (The Circuit Theory of Money), under the pseudonym J.J.O.

Today, the main defenders of the theory of the monetary circuit can be found in the work of Riccardo Realfonzo, Giuseppe Fontana and Riccardo Bellofiore in Italy; and in Canada, in the work of Marc Lavoie, Louis-Philippe Rochon and Mario Seccareccia.

While the verbal description of circuitism has attracted interest, it has proven difficult to model mathematically.

These problem go by such names as: A comprehensive model of the total monetary circuit, which is free from the above difficulties, was presented recently by Pokrovskii et al.[6][7] The figure shows the money flows between the main economic agents.

The government, as a central economic entity, represents the common interests of all members of society.

It receives its share of the value produced in the form of taxes that are returned to other economic entities in various amounts.

The described scheme allows us to formulate an evolutionary system of money circulation equations (Pokrovskii and Schinkus, 2016; Schinckus et al., 2018).

The system determines trajectory of evolution at given production program, government budget and external money flows.

A special feature of the approach in the work (Pokrovsky and Schinkus, 2016) is the introduction and use of global characteristics of the system, including the cost of producing and maintaining circulation of one monetary unit per unit of time (κ), the ratio of income of the banking system to social public output with the exception of bank income, that is, the efficiency coefficient of the system (R), and a measure of distribution of credit money (ξ*).