Journal Article
No. 2014-15 | March 26, 2014
An Inconsistency in Using Stock Flow Consistency in Modelling the Monetary Profit Paradox


In order to understand the sources of profits or monetary profits of capitalists and firms, the author examines the phrase of Marx: 'Die Gesamtklasse der Kapitalisten kann nichts aus der Zirkulation herausziehen, was nicht vorher hineingeworfen war.' (The class of capitalists cannot extract from the circulation what has not previously been thrown in.) Steve Keen studied the monetary paradox and contrary to circuitists he came to the conclusion that capitalists can make a monetary profit with the possibility to earn enough to repay their debt, with positive balances for all actors. The author demonstrates that Keen made a fundamental mistake and is using the Stock Flow Consistency Principle in an inconsistent way by combining it with behavioral equations in a dynamic model. The solution presented here shows not only problems with the numbers but with the method. This solution resolves a dispute between Keen and circuitists and implies that, in a Wicksellian pure credit economy, it remains impossible for all actors to gain a monetary profit.

JEL Classification:

C50, C60, E11, E12, E20, E25, E44, G00


  • Downloads: 1315 (Discussion Paper: 953)


Cite As

Marcel R. de la Fonteijne (2014). An Inconsistency in Using Stock Flow Consistency in Modelling the Monetary Profit Paradox. Economics: The Open-Access, Open-Assessment E-Journal, 8 (2014-15): 1—7.

Comments and Questions

Egmont Kakarot-Handtke - Profit
April 03, 2014 - 16:47

Dear Marcel R. de la Fonteijne,

Keen’s profit puzzle has been solved already with the paper The Emergence of Profit and Interest in the Monetary Circuit (2011), which appeared in in the World Economic Review No 2 (2013b).

A straightforward graphical critique of Keen’s approach is to be ...[more]

... found in the short paper Debunking Squared (2013a).

With regard to Marxian economics all questions have been answered in the working paper Profit for Marxists (2014b).

The theory of profit has been rectified by applying the objective-structural axiom set. For a methodological summary see my recent working paper (2014a).

The matter is settled.

Yours sincerely
Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2011). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–23. URL

Kakarot-Handtke, E. (2013a). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL

Kakarot-Handtke, E. (2013b). The Emergence of Profit and Interest in the
Monetary Circuit. World Economic Review, 2: 106–118. URL http://wer.

Kakarot-Handtke, E. (2014a). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL

Kakarot-Handtke, E. (2014b). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL

Marcel de la Fonteijne - monetary profit
April 04, 2014 - 13:59

Dear Egmont Karokot- Handtke,

Thank you for taking the time to read my paper.

Although you do not explitly say so, it seems that we have no disagreement on anything regarding my paper. On the one hand I’m glad to conclude this on the other hand ...[more]

... it makes it difficult to respond on your remarks, but I will try to do so.

I showed following the example of Keen that there was introduced an inconsistency. So without resolving the paradox I concluded that from a mistake Keen cannot explain the monetary profit paradox.

Concerning the paradox:
I wrote myself a still unpublished paper (2013) about the monetary profit paradox by giving a definition of monetary profit. With this definition you can examine and calculate the monetary profit in general cases involving government, investment and open economies in a simple way.

Hope this answer is satisfactory to you.

Kind regards,

Marcel de la Fonteijne,

de la Fonteijne, M.R. (2013). The Monetary Profit Paradox and a Sustainable Economy: A
Fundamental Approach. Unpublished manuscript.

Egmont Kakarot-Handtke - Profit
April 27, 2014 - 20:02

Dear Marcel R. de la Fonteijne,

the common denominator of authors like Keen, Bezemer, Bruun & Heyn-Johnsen, you and some others is the realization that (a) profit is the pivotal concept for the explanation of how the economy works and (b) that the standard profit theories are logically defective. ...[more]

... If the profit theory is wrong then, clearly, the rest of an approach is worthless. This applies to the Walrasian and Keynesian approaches and their derivatives. We certainly agree on this point (see my website!profit/c1apr for the details).

The authors mentioned above deserve the highest praise because they ask the right question. With this they are far ahead of the optimal allocationizers. The profit mechanism is decisive for the fate of an economy, the price mechanism is the supporting actor.
My point is that Keen, you, and others are close to the solution but that two or three extra steps are needed to leave conventional economics definitely behind.

Kind regards,
Egmont Kakarot-Handtke

Marcel de la Fonteijne - monetary profit
April 28, 2014 - 11:38

Dear Egmont Kakarot-Handtke,

Though I appreciate that you take the time to write a comment, I have once again the impression that we do not disagree upon this paper. It is more a comment on that other paper of mine already mentioned (see below).

For that ...[more]

... reason I do not think it is appropriate to discuss it here.

In that paper I clarified the paradox of monetary profit and gave a simple equation to calculate the monetary profit. Interesting point is that I even did not had to use the concept of Wages and Mark-up Profit and that I proved/clarified it for all economies (including foreign affairs, gov., redistribution, taxes, etc) you can imaging in only a few lines.

Once again, we should not discuss this subject here.

Kind regards,

Marcel de la Fonteijne

The Monetary Profit Paradox and a Sustainable Economy - A Fundamental Approach

Egmont Kakarot-Handtke - Profit
April 28, 2014 - 12:26

Dear Marcel de la Fonteijne,

if your paper boils down, for the simplest possible case of the pure consumption economy, to the profit formula Qm=C-Y+DN (Qm monetary profit, C total consumption expenditures, Y total income, DN distributed profit) then we agree, otherwise not.

I respect your wish not ...[more]

... to discuss the matter further.

Kind regards,
Egmont Kakarot-Handtke