The paradox of profits in an AB-SFC model

This paper presents a scheme of monetary profit realization within the traditional structure of the monetary circuit. We point out that in a framework reproducing a monetary economy of production without exogenous components of demand and investments, the reciprocal consumption of the capitalist class is the key channel of monetary profit realization. We develop an Agent Based – Stock Flow Consistent model of the monetary circuit consisting of a multiplicity of consumer sectors where the original formation of monetary profits is due to unequal shares of consumer goods in the wage basket and/or different labor productivities across sectors. Within each production period, the sectors with a higher weight in the production of wage goods will generate monetary profits through the consumption of workers, while the capitalists’ consumption resulting from such profits will recursively generate the monetary profits of other sectors, and so on. In this sense, the core of the solution of the profit paradox lies in the monetary mechanism through which the capitalist class appropriates the corresponding share of production. This representation confirms Kalecki's insight: “capitalists earn what they spend, workers spend what they earn”.