Augusto Graziani has died.

One of Graziani’s main themes runs as follows. In order to finance production, the entrepreneur must obtain the funds necessary to pay his workforce in advance of sales taking place. Starting from scratch, he must borrow from banks, at the beginning of each production cycle, the sum which is needed in order to pay wages, creating a debt for the entrepreneur and, thereby, an equivalent amount of credit money, which sits initially in the hands of the labour force. Production now takes place and the produced good is sold at a price which enables the debt to be repaid inclusive of interest, while hopefully generating a surplus – that is, a profit – for the entrepreneur. When the debt is repaid, the money originally created is extinguished. An entire monetary circuit is now complete.

This account of the monetary circuit has a number of extremely important and distinctive features. It emphasises, in particular, that a) there is a gap in (historical) time between production and sales which generates a systemic need for finance; b) bank money is endogenously determined by the flow of credit and c) total real income must be considered to be divided into three parts – that received by entrepreneurs, that received by labour and that received by banks. We have already travelled an infinite distance from the (yes, silly) neo-classical world where production is (must be) instantaneous, where money must be exogenous and fixed and has no counterpart liability, and where the distribution of income is determined by the marginal products of labour and capital – a construction which depends entirely on the assumption that all firms sit perennially on a single aggregate neoclassical production function frontier.

− Wynne Godley, Weaving Cloth From Graziani’s Thread in Money, Credit And The Role Of The State: Essays In Honour Of Augusto Graziani