A capitalist monetary economy without deflation? (Circuit-institutionalist approach)

Abstract

We start by spell out what is “deflation” in its modern form: a cumulative crisis of the real economy characterized by an unchecked rise in unemployment and inflation. Next, we strive to emphasize what we consider as the fundamental “objective laws” of the system by relying on its most general framework: an intertemporal monetary circuit. We show that the existence condition of the system is the state’s commitment to be the “architect of the future” out of its always-growing productive investment in both tangible and non-tangible capital. Left to itself, the private capitalist sector is more and more paralyzed because of its rising anxiety about the future. This role of the state requires that its leading investment reflect its good productive deficit that is free of effective debt (or debts to itself). From this analysis, we are able to derive both the cause of cumulative real deflation and the only way to escape from it. The cause is the transmogrification of the state into a “predatory” one that targets only a balanced budget. It generates both a drop in productive investment and a rise in taxes, which become the cause of both cumulative unemployment and inflation because there is a simultaneous and desperate attempt on the part of the private sector to compensate for the fall of its permanent expected flow of profits by a rise in its required share of profits. Thereby, the sole road to a desirable future is the reconstruction of the system by getting rid of any exogenous limit to both the deficit and the public debt resulting from the privatization of the public finances. This is why the new “predatory” state must be replaced by a “Creative or Entrepreneurial” one acting for the people as a whole in the most decentralized way.