Year: 2025
Type: article
Abstract: In modern macro models (in particular, dynamic stochastic general equilibrium models – DSGE models), which occupy leading positions in world economic science, money is not included in the composition of variables. If in practice money (along with innovations) acts as a motor of economic development, then in the specified models there is no such motor. In our opinion, the main defect of DSGE-type models is that they are "moneyless". The main gap that prevents the construction of a macroeconomic model, where money is the motor of development, is associated with a misunderstanding of the essence of the circulation of money in a closed economy that reproduces its fixed capital by its own efforts. This is the essence of the blank spot in orthodox economic theory. It is shown that the circulation of money is the transformation of money capital into consumer money, and then the reverse transformation of consumer money into money capital. Explanations of the essence of the Shifting Mode Reproduction (SMR) as an objectively existing phenomenon are presented. A scheme of a two-circuit (investment and consumer) circulation of money based on the principles of the SMR is constructed and analyzed. It is shown that emission into the investment circuit promotes economic growth, and emission into the consumer circuit allows solving social and geopolitical problems but generates inflation. A critical assessment is given to the supporters of DSGE to justify the absence of money as variables in their models by a statistically insignificant connection with key macro indicators.
Source: Economic Revival of Russia
Author: V.I. Maevsky
Language: English
Topic: Economic Theory and Policy
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4411151670