Augusto Graziani
and the post-Keynesians


I first met Augusto Graziani and became aware of him at the 1984 Trieste summer school, which gathered key post-Keynesian and Sraffian scholars for nearly a decade. The other participants to the summer school, listening to the various lectures and round tables, were doctoral students or young teachers like myself. I was a 30-year-old assistant professor and had just obtained tenure at the University of Ottawa at the end of a five-year period. Graziani was one of the lecturers. When he delivered his lecture, I was quite stunned. I realized that he had a view of the economy, more precisely the monetary theory of production, which was highly similar, if not identical, to the monetary circuit view of Alain Parguez, which I had encountered when studying in Paris in the late 1970s. This was a shock to me, because it seemed that, quite independently, two different scholars had come up with a very similar and highly original story of how the functioning of the economy had to be understood. It improved my confidence in heterodox economics and reinforced my belief that, despite the fact that this was a very minority view in macroeconomics and monetary economics, it was the more appropriate one. As I came to write several years later, ‘my own view of circuit theory is that it constitutes the proper foundations to a non-orthodox monetary theory, which itself must be part of a larger non-orthodox research programme encompassing effective demand as well as value theories’ (‘Monetary policy in an economy with endogenous credit money’, in Money in Motion: The Post Keynesian and Circulationist Approaches, edited by Ghislain Deleplace and Edward Nell, 1996, p. 534).

Besides this, I must say that I did not meet Graziani that often, or perhaps I don’t remember all the encounters. I did meet him in 1990, because both of us were then named and brought together on the International Advisory Board of Économie appliquée, the main economics journal of the ISMÉA organization, located in Paris, and chaired at the time by Gérard Destanne de Bernis. I was clearly the junior member of this advisory board, as the board included highly recognized scholars, Graziani himself, as well as Irma Adelman, Amit Bhaduri, Joseph Halevi, Vladimir Kollontai, Jun Nikishawa, Luigi Spaventa and Adrian Wood. The last three economists were not present at the seminar that followed the meeting of the board, but Graziani did present a paper that combined his views on the Keynes’s finance motive and a short version of his synthesis of the theory of the monetary circuit. His presentation, ‘La théorie keynésienne de la monnaie et le financement de l’économie’, was published in Économie appliquée (1991, no 1,

We may not have met each other for the next ten years. However, we both attended the monetary economics conference organized in 2001 at the Free University of Berlin, which was the home of Arjo Riese, another original thinker, acting as a kind of orthodox dissenter in monetary economics. I still have the paper that Graziani distributed at the conference, ‘Endogenous money in the Circulation approach’. As far as I know, the paper was never published, probably because, contrary to expectations, no book came out of the conference (my own contribution was published 16 years later!). I had underlined a few passages of Graziani’s paper, among which his claim that the circulation approach, that is, the theory of the monetary circuit, was highly connected to Wicksell’s pure credit economy. I had underlined another passage where he compared his views, where credit requirements are equal to the wage bill, with those of Wynne Godley as found in Godley and Cripps (Macroeconomics, 1983), where the stock of credit equals the production cost of inventories. These sentences were of particular interest to me since in 2001 I had just starting to collaborate with Wynne Godley.

What stuck most in my mind from the conference is that Basil Moore, a good friend of mine who had devoted an entire book to the post-Keynesian theory of endogenous money, made an off-remark to Graziani, telling him that ‘Keynesian’ ought not be pronounced “ke·nee·zuhn” but instead be phonated as “kayn·zee·uhn”. Graziani did not bother to respond but the next day Jan Kregel told Moore in no uncertain terms that he had been rude to Graziani, pointing to Moore’s own presentation by saying: ‘You made the same mistake again, as I told you before, savings is a stock, while saving is a flow’! 

The last time I saw Augusto Graziani was at the second conference that was organized in his honour, so as to produce a festschrift, which was held in 2003 in Benevento, and which resulted in the book edited by Giuseppe Fontana and Riccardo Realfonzo (The Monetary Theory of Production, 2005). I had also contributed to the other festschrift, but had not been present at the conference that had been organized two years before by Richard Arena and Neri Salvadori (Money, Credit and the Role of the State, 2004). Graziani got really excited with the topics being discussed at the Benevento conference, so much so that he himself ended up making a faux pas, declaring that this was the best conference that he had attended, not realizing that Salvadori, who had organized the previous one, was sitting right behind him!

Readings and writings

The first paper of Graziani that I read and made use of is his 1984 paper published in English in an Italian journal, the Monte dei Paschi di Siena Economic Notes, titled ‘The debate on Keynes’s finance motive’. The paper had been sent to Alain Parguez by Graziani himself, as attested by his handwritten note: ‘à Alain Parguez, avec amitié, Augusto’. I made a photocopy from Parguez’s copy, probably when Parguez came to the University of Ottawa, in the Fall of 1984.

This 1984 Economic Notes article helped to clarify my thoughts when I wrote my paper on ‘L’endogénéité de la monnaie chez Keynes’, which was published in Recherches économiques de Louvain in 1986. My paper sunk without much of a trace, either because it was published in French or because the journal was mostly known for being mainstream. When I wrote my synthesis of the monetary circuit theory, I cited once more Graziani’s 1984 Economic Notes article, as well as another paper of his on the finance motive ‘Un débat sur le motif de financement de J.M. Keynes’, published in 1985 in Économie appliquée. My synthesis of the theory of the monetary circuit was published in 1987, simultaneously in French in the publication series Monnaie et production of the journal Économies et sociétés and in Italian, translated by Riccardo Bellofiore (whom I had met in Belgium in 1985) for the Italian review Metamorfosi [‘La teoria del circuito monetario’, Metamorfosi, n.s., number 5, 1987, pp. 7-36].

There was indeed a big debate on the meaning and role of Keynes’s finance motive in the late 1970s and early 1980s, with contributions by nearly a dozen authors, including well-known ones such as Paul Davidson, Stephen Rousseas and Tom Asimakopulos. My opinion was that the interpretation put forward by Graziani was the best one – that is, the correct one. In particular I remember two very clear statements made by Graziani in his 1984 paper on the finance motive, statements which he emphasized on several other occasions. First, one has to distinguish between initial finance and final finance; this is a distinction that some researchers at the Bank for International Settlements, such as Borio and Disyatat, are now also endorsing and highlighting. Second, it is not only investment that needs this initial finance, it is the whole production, and this will be needed both when the economy is growing and when the economy is in a stationary state. It turned out later that this was also Godley’s opinion, as reflected in our book Monetary Economics (2007) which presented what came to be known as the stock-flow consistent approach (SFC). But, as is recalled by Jan Toporowski in his contribution to the blog, this is still a highly contentious issue among post-Keynesians, although the topic is not so much discussed anymore.

Although being 20 years younger and much less experienced than Graziani, I should say that there was a bit of a reciprocal influence. In his famous 1989 synthesis article on the Theory of the Monetary Circuit (TMC), which first came out in the Thames Papers in Political Economy and which was reproduced in the 1990 issue of the Monnaie et production series, Graziani cites three papers of mine, published in 1982, 1985 and 1987. He also mentions my name in his introduction to the book on the circulation and circuitist theory of money that he edited with Richard Arena in 1985 (Production, Circulation, Monnaie) as a follow-up to the workshop held the previous year in Nice. As I said before, when a student in Paris in the late 1970s, I had listened to and read Parguez extensively, who had very similar ideas to those that Graziani had presented in his lecture in Trieste, so I knew about the theory of the monetary circuit (even alternative versions of it such as those of Bernard Schmitt and Frédéric Poulon), and had started to write about it. One might say, however, that Graziani wrote it all in a much sharper way than Parguez or than most of us did. As Riccardo Bellofiore points out in his contribution to the blog, Graziani’s writing style was ‘crystal clear’. 

Graziani and I published papers in the same issues of the Monnaie et production series, in 1985, 1986, 1987 and 1990, so of course I also read these papers of his. The series, edited by Alain Parguez,  brought together papers by Anglo-Saxon post-Keynesians and European circuitists. The series contained ten nearly-annual issues, from 1984 to 1996. Thinking about it, it reminds me that Graziani could be very generous of his time. In 1996, De Bernis wanted a member of the editorial board of Économie appliquée, Jacques Léonard, to co-edit Monnaie et production with Parguez. While Léonard had previously published in Monnaie et production and was clearly in line with post-Keynesian economics, Parguez was adamant that this would not happen, refusing to lose even partial control over the series. He announced that he was giving up in editing the series. Many of us called or wrote to Parguez in an attempt to change his decision, asking him to mettre de l’eau dans son vin, and thus continue to run the series as co-editor. But Graziani did more than that. He flew all the way to Paris to meet Parguez in person and try to convince him to change his mind and continue with the series, but to no avail. Sadly the series was discontinued.

I should also say, perhaps in contrast to all the contributors to this blog with the exception of Bellofiore, that I also read, in the 1980s, a paper of Graziani that was published when he was in his thirties, in 1967, in Économie appliquée, where he was discussing Walrasian general equilibrium theory and Pierangelo Garegnani’s critique of it (‘La valeur actuelle de la théorie de l’équilibre économique général’). If I can judge by the several passages that I have underlined on my photocopy of the article, I took his arguments very seriously. Essentially, Graziani was arguing that the Walrasian system was not over-determined, in contrast to the claims of Garegnani, provided one took away fixed production coefficients and replaced them by flexible coefficients. Although interested in these issues that were dear to Sraffian economists, I never wrote anything about them.

Graziani and Godley, or the TMC vs SFC

A number of scholars who were introduced to the theory of the monetary circuit have endorsed the stock-flow consistent approach. As just a few examples, one can think of Edwin Le Heron in France, or authors such as Alberto Botta or Marco Veronese Passarella. One may thus wonder about the relationship between the theory of the monetary circuit and the stock-flow consistent approach, or the relationship between Godley and Graziani. In fact, Gennaro Zezza and I organized a small symposium on this possible relationship for the European Journal of Economics and Economic Policies: Intervention, with two papers now in advanced access by Veronese Passarella and Cottin-Euziol/Bougrine/Rochon. There is also a paper by Éric Berr and Virginie Monvoisin that deals with this link (‘Monetary circuit theory, stock-flow consistent modeling and Parguez’s analysis’, International Journal of Political Economy, 2023 (3-4)). Can we say that Graziani’s works on the monetary circuit inspired the SFC approach, as I was asked recently by Giuseppe Fontana and Rosa Canelli during an interview for the 2024 Benevento conference in honour of Graziani?

I would not put it this way. If you read the 1983 book published by Godley and Cripps, you will find the argument that all production needs finance, that bank credit is essential and that production takes time – three standard circuitist claims. Godley and Graziani first met each other in 1988, as I was told by Gennaro Zezza, and they got along very well because, besides the fact that they were both musicians and of the same generation, they had the same vision of a monetary production economy and of the monetary circuit. And I got along very well with Godley for the same reason. I tried to explain all this in an article called ‘Wynne Godley’s monetary circuit’, published in 2021 in the Journal of Post Keynesian Economics. For the 2004 Festschrift edited by Arena and Salvadori, Godley wrote a little 25-equation SFC model which he thought was an adequate representation of Graziani’s vision (‘Weaving cloth from Graziani’s thread: endogenous money in a simple (but complete) Keynesian model’). This does not mean that the works of Graziani on the monetary circuit inspired the SFC approach. Godley had his own vision of the monetary circuit before he met Graziani or read some of his works.

The SFC approach is partly inspired by some works of James Tobin, but with an extended post-Keynesian twist. If I may be blunt, the formalization provided by Graziani and Parguez and many of their followers was inadequate when compared with that of the current SFC approach, which has no black holes and which fully takes into account the evolution of stocks, not just flows, and which does not suppose that output is a given, as is the case in some of Graziani’s formalizations, as also noted by Mario Seccareccia in his contribution to the blog (a more extensive discussion on the consequences of this assumption by Graziani (and Minsky) can be found in Seccareccia, ‘Government deficit spending and inflation: Alain Parguez and the post-Keynesians, International Journal of Political Economy, 2023 (3-4)). It would be best to say that Godley’s SFC approach enlightens the circuitist approach to money and production as told by Graziani.

To finish on a positive note, it must be reminded that Graziani, like Godley, understood very well the weaknesses of Tobin’s portfolio view on money, which has become the standard view about monetary creation. I have discussed in a recent paper what were Godley’s critiques on this matter (‘Godley versus Tobin on monetary matters’, Review of Keynesian Economics, 2022 (1)). Tobin’s view is inconsistent with post-Keynesian monetary theory and the circuitist story told by Graziani since bank loans in Tobin’s framework play no special role, being dominated by the conduct of deposit holders, as banks are said to be no different from other financial firms. As was pointed out to me recently by a retired American lawyer interested in money and banking issues, Graziani had these flaws clearly identified in a section of his 2003 book, The Monetary Theory of Production.

Marc Lavoie

Marc Lavoie

Professor Emeritus at University of Ottawa and the Université Sorbonne Paris Nord

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