Modern monetary theory has chiefly concerned itself with money as an asset, deriving this focus from Keynes. But circulation has been neglected, subsuming the relevant concerns under the “transactions demand.” This is not justifiable. Moreover, in spite of the attention to assets, capital arbitrage has not been fully explored. Capital can be shifted into and out of real assets very quickly in modern conditions; when this is taken into account, the Keynesian approach to money and financial markets can be shown to result in the “Classical Dichotomy.” In addition, it provides an inadequate analysis of the stability relationships between money and finance, on the one side, and commodities and labor, on the other. The neo-Classical synthesis fares even worse, however: it turns out to be inconsistent.

Chapter 13 presents our picture of market adjustment in Mass Production. The real side of the economy is unstable; but this instability is partly constrained by the financial system under appropriate conditions. The economy will tend to expand, but the boom will lead to an increase in fixed costs and under extreme conditions to profit squeezing inflation. However, declining inflation raises real interest rates again, holding the economy in a slump, until a fall in nominal rates, coupled with the reduction in fixed costs due to reorganization, allows for expansion again.

Interestingly this cycle tends to settle either into one or another of two regimes, where the real interest rate lies either below or above the growth rate.