existence of profits

["William B. Ryan" <william_b_ryan@xxxxxxxxx>]

At page 25 of PKT correspondent Louis-Philippe Rochon's recent book, *Credit, Money and Production: An Alternative Post-Keynesian Approach*, is this paragraph:

"...This is the familiar debate over the existence of profits, or in Marx's terminology, how can M become M'.  As Seccareccia (1996, pp. 405-6) asks, 'How can firms collect more money revenues than the amount of economic agents are willing to borrow collectively from the banking system?'  Similarly, Nell and Deleplace (1996, p.14) ask, 'How firms who borrow a given sum can reimburse it and pay the interest, if all money comes from bank credit?'  Even Schumpeter (1934, p.189) asked this question.  Consider the following reference: 'Within the circular flow...it is impossible with a given money sum to obtain a greater money sum.'"

Rochon concludes with this note at page 39:

"There have been several attempts at explaining the existence of profits.  Most rely on some external factors, such as government, a foreign sector or, as in Robinson (1956), on the wages of workers in the banking sector.  Although the topic deserves greater exploration, it is not discussed here.  Parguez (1996, p.161) has, however, given a more realistic suggestion, relying on the specific hierarchical relationship between banks and their customers.  Firms negotiate the reimbursement of their debt over several periods.
'Individual credit contracts cannot always insist that current investment must be paid back or refunded entirely by current net income generated by current sales.  The contracts arrange that a share of new investment should be refunded by current profit, the other share being refunded later by a share of those future increased profits, whose expectation is the support of the rise in capital value which is the stake of current investment.'

"Parquez's position (which is supported here) is in contrast with Zebato's (1989, p.96) view that profits cannot be generated within a closed system.  Zabato (1989, p.96) argues that 'we must admit that the circuit can only be imagined as open.  Closed...it would be impossible to account for profits.'"
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An approach to resolve this conundrum is suggested at http://www.geocities.com/socredus/ryan-03-23-02.htm with a diagram at http://www.geocities.com/socredus/gap.jpg



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