Initial and final finance in the monetary circuit and the theory of Effective Demand

One remarkable aspect of modern heterodox theory is the detachment between demand-led growth models and endogenous money theories. This paper suggests a possible integration of the Keynesian theory of the multiplier (and supermultiplier) with endogenous money and Keynes's finance theories. Focussing upon Graziani's version of the Monetary Circuit Theory (MCT), the paper is a contribution towards reconciling the preoccupation of MCT with initial production financing, and the concern of demand-side oriented heterodox growth theories with final financing of autonomous demand. Following Davidson, Dalziel and others, the paper shows that endogenous money finances production decisions based, inter alia, on expected consumption and investment orders. In turn, the income (super)multiplier generates actual consumption and saving. The latter funds the actual purchase of investment goods. The (super)multiplier is the nexus between initial and final finance. Various complications of this basic idea not yet considered by the literature are examined.