Augusto Graziani: an ‘untimely’ economist

Augusto Graziani: an ‘untimely’ economist

Riccardo Bellofiore

Augusto Graziani (1933-2014) was one of the last representatives of an original post-WWII Italian tradition, capable of novel and critical contributions, opposed to traditional approaches fostering conformism. Graziani was President of the Italian Economic Association (1998-2001) and Senator of the Italian Republic (1992-1994, for the Partito Democratico della Sinistra). He left behind his wife Angela, and two daughters Sandra and Rebecca, who gave him two grandchildren. 

Graziani’s interventions have been fundamental on too many topics to be remembered here: monetary macroeconomics, economic policy, growth and development, regional disparities, history of economic thought, to name just a few. His participation in the Italian tradition is clear from the way he —- like Sylos Labini, Napoleoni, Pasinetti, Garegnani, Caffè, Lombardini, de Cecco, Lunghini, Vianello, Ginzburg, as others — inextricably linked present-day theorising and history of economic thought. The symbiosis between the history of political economy and economics, on the one hand, and the analytical development of alternative theoretical schemes, on the other, went hand in hand with a vision of economic theory as part of a critical social science. The theoretical debate was integrated and prolonged in direct interventions on economic policy issues, without any hiatus and never slipping into abstractness. Contrasts were not feared, but the controversy always remained at the highest levels. He leaves no ‘heirs’, rather a task: that of developing a radical alternative to the current mainstreams which puts money, power, and class at the centre of the ‘macromonetary theory of capitalist production’.

For Graziani the study of the authors of the past is instrumental for revealing the problematic nature of current mainstreams, opening new perspectives in dealing with economic, truly social, problems. This historically minded approach to economic theorising is dangerous since it reveals that economic theory is not a one-paradigm discipline, but a multi-paradigm contested terrain. This, of course, made him not only an advocate of the teaching of history of economic thought in the basic curriculum, but also a supporter of a heretical view according to which the teaching of economic theorie(s) must be characterised from the start by a plural and non-dogmatic assessment of the different approaches to the topics under investigation. Those who were lucky enough to listen to his lectures (passionate in his rigorous, Anglosaxon style of speaking, matched by the crystal clarity of his written style) or to study on his textbooks know very well that he was always encouraging an active attitude and critical spirit among his students, as well as offering them an original and heretic perspective at the edge of the discipline.

Graziani’s originality in the Italian tradition, and his contribution to dissenting economic thinking, crystallised in the theory of the monetary circuit (cf. Graziani 2003). He framed it in late 1970s and sharpened it in the early 1980s in his closed Seminar on Monetary Theory in Naples (1981-1985), where I participated. This Italian theory of the monetary circuit had distinctive features relative to the French versions by Alain Parguez and Bernard Schmitdt. Whereas current mainstream theory derives macroeconomics from microfoundations, Graziani thought that the individuals’ behaviour must be deduced from macrosocial conditions of reproduction.

The main influences were Marx, Wicksell, Schumpeter, Kalecki, and Keynes: not so much the Keynes of General Theory, focusing on money as a store of value, rather the Treatise on Money, viewing capitalism as a monetary production economy, and the articles after the 1936 book on the finance motive (cf. Graziani 1984). Graziani understood money as finance for production, and the economic process as a sequence of distinct phases in real time, as opposed to the Neoclassical simultaneous exchanges approach. Money enters the economy as purchasing power: banks’ financing of the entrepreneurial class allows companies to set in motion production and innovations, shaping the composition of output and fixing income and wealth distribution. Money is totally endogenous and non-neutral, not only in depression, but also in the system ‘out of crisis’. Graziani’s circuitism is a positive rather than a normative analysis, like more recently other cognate views (French circuitism, or neo-chartalism). It arose in opposition to standard Keynesianism, Monetarism and New Classical Macroeconomics; but also out of a dissatisfaction with the received versions of Neoricardianism and Marxism, as well as the many Post-Keynesian streams. Needless to say, Graziani always distanced himself from the New Keynesian updating of the Neoclassical Synthesis.

Graziani was born in Naples in 1933 into a Jewish family. His grandfather, Augusto, was a Professor of Economics, and moved from Modena to Naples in 1899. His father, Alessandro, a Professor of Law, was forced into early retirement by the Fascist regime: because of racial laws his son could not go to school and had for some years a private tutor. He learned to play violin, up to the 5th year of the Conservatory (not long ago in Naples a few lucky guests enjoyed his duet with Wynne Godley playing the piano). Graziani graduated in Economics in 1955. At the London School of Economics he had Lionel Robbins as his supervisor. He then went on to MIT and Harvard, meeting with Wassily Leontief and Paul Rosenstein-Rodan. Full professor at 27, he taught in Catania, Naples, and Rome.

His first writings, too often considered Neoclassical, testify instead to his attention to structural change and an early divorce from standard theory. His 1965 book on General Economic Equilibrium (Equilibrio generale ed equilibrio macroeconomico, cf. Graziani 1965) defended the logical soundness of Walras only to destroy its relevance for capitalism (a criticism he extended to the then fashionable balanced macro-models). He challenged the assumptions of the orthodox theory, which sees the economy and society populated by sovereign consumers and with an exogenously given technology: a world in which money can only be neutral. It is a point that Graziani the circuitist has always confirmed, resisting to ‘forced marriages’ between Sraffa and Keynes. In his opinion, many Sraffian critics of neoclassical thought made the mistake of engaging in an exhausting and ultimately counterproductive ‘hunt for errors’, with fatal results: the main reference was Garegnani and his school. The criticism of the mainstreams must be targeted to the basic assumptions, highlighting different ideological visions and alternative reconstructions of the capitalist process.

His 1969 book on the development of an open economy (Lo sviluppo di una economia aperta: cf. Graziani 1969) is in continuity with this theoretical perspective. Graziani showed how Italian ‘dualism’ was not due to trade unions’ rigidities but to an export-led strategy, with producers’ sovereignty determining firms’ technology, organisational structures, productivity differentials, employment structure, and relative wages. Here again Graziani the circuitist confirmed this view. He refuted the false abstract alternative ‘free trade’ versus ‘protectionism’ and underlined how the international economy is always ruled by managed trade, and there is always a political intervention in capitalist accumulation. 

As I anticipated, in the 1970s, Graziani’s thought was radicalized. This is testified by the revisions of his masterful manual that he published more than a decade before, and which now takes the name of Economic Theory (Teoria economica): the first volume is significantly entitled Prices and distribution (Prezzi e distribuzione, cf. Graziani 1976) and not Microeconomics; the second volume is more traditionally titled Macroeconomics (Macroeconomia, Graziani 1981) but has a highly innovative content. Graziani sees the capitalist process as a sequence of successive phases in which the flux and reflux of monetary circulation deeply marks real production. Graziani’s circuitism is irreducible to a simple variant of the heterodox Keynesian galaxy. If the constitutive and founding nature of the critique of Post-Keynesianism and Neo-Ricardianism is not understood, I believe that Graziani’s most original contribution is lost (cf. Bellofiore 2019a).

The distinction between orthodoxy and heterodoxy (or heresy, as I prefer) rests on the recognition of the macro-monetary and class nature of the capitalist process, a point that he very forcefully stressed in his quite original rehabilitation of Marx’s theory of value (cf. Graziani 1997, which is a translation of his 1983 article Riabilitiamo la teoria del valore; my reconstructive effort as in Bellofiore 2019b is in continuity with this interpretation). Money is an instrument of power of the capitalist class. The process of introduction, circulation, destruction must first be studied abstracting from the State. However, the crucial distinction between the banking sector and the business sector is introduced. Banks finance the wage bill paid by firms to wage labour, and it is this initial finance to production that opens the circuit. The money supply is therefore introduced as an endogenous flow, not as an exogenous stock. The non-closure of the circuit due to an increase in the demand for money as a store of value is a special case. 

The relationship between banks and firms defines not only the level but also and crucially the composition of production and hence the distribution of income. The priority of deposits over loans and the priority of savings over investments are reversed. Inflation is seen above all as a change in relative prices that determines a ‘compression’ of purchasing power, both for wage earners and for business firms in capitalist real competition and that can be functional to accumulation. His argument about inflation and bank money allows us to study how price changes affect not only the relationship between the fractions of industrial capital but also that between financial capital (banks) and industrial capital (firms). Inflation in the 1970s made it possible to hide a significant share of the surplus value in the banks: the alarms for the compression of industrial profits were exploited to favour a profound industrial restructuring, and the consequent capitalist ‘normalization’.

If we introduce the State, money is confirmed to be a debt to the banking system, of which the Central Bank is part of. It is now possible that profits, like bank interests, are realised in money thanks to additional injections of liquidity that finances what Kalecki called ‘domestic’ exports, i.e. government deficits monetarily financed. Privileged access to money is also a prerogative of governments: Graziani has never succumbed to ‘sovereignism’, however, and has been very careful not to support generic unqualified increases in demand. The failures of the private system are profound, and the collective needs unsatisfied: public expenditure must be directed to enforce a composition of the product that is socially useful. The State must ensure citizens, ‘in kind’, the real availability of goods and services, going beyond a policy of monetary subsidies or tax cuts. Last but not least, the State has the responsibility to pave the way for an investment that improves the structural quality of the economy over a long-term horizon that only it can guarantee. The insistence on the command on ‘what’, ‘how much’, ‘how’ and ‘for whom’ to produce speaks to us today, when the urgency of a socialization of investments is at its highest: a need made even more urgent by the coronavirus pandemic, and which should be met by contrasting the ordoliberal model of a social market economy and turning instead towards a ‘social production economy’ (cf. Bellofiore 2021).

Graziani was a lucid interpreter of the contradictions of contemporary capitalist development, especially in Italy (and its ‘Mezzogiorno’) and Europe (his last book on this was Graziani 2000). He showed how successive competitive devaluations were never followed by industrial policies, and how the European Monetary System and the institutional framework of the Euro as the single currency left Italy in a subordinate position lacking autonomous engines of growth – with wages and working conditions as the only adjustment variables. His circuitism extended into a criticism of economic policy, showing the limits of the explosion of bank interest rates in the 1970s (hiding surplus value in banks’ balance-sheets), of the burgeoning government budget deficits in the 1980s (providing money ‘for free’ to the firm sector), of the Bank of Italy high discount rate policy to induce capital inflows at the end of that decade (delaying the 1992 day of reckoning); but also of outsourcing and the ‘district’ model, of the suicidal liberalisations and privatisations, of the dismantling of manufacturing and big firms. Graziani also anticipated that the late US-driven indebted consumer model signalled a transformation of the circuit and not its obsolescence. 

I am indeed convinced that so-called ‘neoliberalism’ was a capitalism of the real subsumption of labour and households to finance and debt. Business firms now obtain the financing to production in a roundabout way. This configuration of capitalism, of which we are experiencing the crisis, may be defined as a sort of paradoxical ‘privatised Keynesianism’. Graziani also promptly identified the contradictions of the monetary unification process. However, he argued that nothing guarantees that the exit from a fixed exchange rate system will not be accompanied by a halt to austerity policies. A prolonged devaluation can have, as it has had, deleterious effects if it is not accompanied by structural policies, especially in a country like Italy, characterized by deep regional imbalances.

A paradox in the paradox we are now living since 2020 onwards is that privatised Keynesianism has taken a new turn for the worse. Before, until the Great Recession beginning in 2007, privatised Keynesianism had at its core a monetary policy driving capitalist growth through consumer debt and the consequent speculative bubbles. Now, because of the reaction to Covid pandemics, the much proclaimed ‘return of the State’ on the terrain of an expansive fiscal policy is accompanied by a privatisation of the criteria, aims, and management of the fiscal policy itself. This very much qualify the reform of the economic policy governance in the Euro area introduced with the Next Generation EU and the Recovery and Resilience Facilty. Everywhere, the casualisation of labour is strengthened rather than relieved.

Graziani’s perspective on the capitalist process as qualitative development is not just that capitalism is constrained by a lack of effective demand and comes to rest in involuntary unemployment equilibria. Capitalism is above all a reality inhabited by power and conflict, by increasing returns and external diseconomies, by regional concentrations and by intensifying inequalities. A universe where only public intervention and social struggle, if they support each other, can in time alter positively and progressively the evolution of the production structure.

Graziani’s legacy is that of an ‘untimely’ intellectual, committed to progressive social change: countering his own time, thereby acting on it, for the benefit of a time to come.


Augusto Graziani (1976), Teoria economica. Prezzi e distribuzione, 2nd ed., Naples: Edizioni Scientifiche Italiane. 

Augusto Graziani (1981), Teoria economica. Macroeconomia, 3rd ed. Naples: Edizioni Scientifiche Italiane.

Augusto Graziani (1984), ‘The Debate on Keynes’ Finance Motive’, Economic Notes, 13: 1, pp. 5–34. 

Augusto Graziani (1997), ‘Let’s Rehabilitate the Theory of Value’, International Journal of Political Economy 27: 2, pp. 21–25. (Italian original: ‘Riabilitiamo la teoria del valore’, L’Unità, special supplement for the centenary of Marx’s death, 27th February 1983, p. 4). 

Augusto Graziani (2000), Lo sviluppo dell’economia italiana: dalla ricostruzione alla moneta unica, 2nd ed. Turin: Bollati Boringhieri.

Augusto Graziani (2004), The Monetary Theory of Production, Cambridge: Cambridge University Press.

Riccardo Bellofiore (2019a), ‘Augusto Graziani and the Marx-Schumpeter-Keynes “Cycle of Money Capital”: A Personal Look at the Early Italian Circuitism from an Insider’, Review of Political Economy, 31:4, pp. 528-558.

Riccardo Bellofiore (2019b), ‘Is There Life on Marx? The Critique of Political Economy as a Macro-Monetary Theory of Capitalist Production’, Maurice Dobb Memorial Lecture at the Conference in Patna (Bihar), India, June 16-20, 2018, published in PSL Quarterly Review, 71: 287, pp. 353–388).

Riccardo Bellofiore (2019c), Euro al capolinea? La vera natura della crisi europea, Turin: Rosenberg & Sellier.

Riccardo Bellofiore (2021), ‘The Winters of Our Discontent and the Social Production Economy’, Review of Political Economy, 33:3, pp. 394-413.

Riccardo Bellofiore

Riccardo Bellofiore

Professor of Political Economy at the University of Bergamo