DEFINITION of 'Circuitism'

A macroeconomic explanation of how banks create money for production activities, how firms direct production, how workers contribute to production and consumption and how money from those activities then returns to banks. Circuitism is a post-Keynesian theory based on Karl Marx's ideas about the M-C-M (money-commodities-money) capital cycle.

Also known as monetary circuit theory.

BREAKING DOWN 'Circuitism'

Circuitism was developed starting in the late 1950s mainly by French and Italian economists such as Bernard Schmitt and Augusto Graziani. Circuitism says that money supply is based on money demand. Money is demanded to finance production, to trade goods and services, to save and to invest. In contrast to neoclassical economic theory, which emphasizes the role of the individual in the economy, circuitism emphasizes the roles of banks and firms.

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