Hennings’ other circular flow diagram incorporates a different role for capitalists: they do not just mete out funds for producers to purchase factors, but also claims to present output. Both are offered/exchanged in the loanable funds market.
This is why Hennings refers to Böhm-Bawerk’s subsistence market as just an expanded loanable funds market.
In this version,
- Capitalists indirectly own the rights to future output by saving claims to present output.
- The claims to future output are offered on the loanable funds market and borrowed by producers who do all the discounting in this model.
- They convert factors into present output and exchange the right to the whole product (which only exists in the future) for the present use of factors.
- The owners of the factors exchange their claims to future output for claims to present output on the loanable funds market.
- Some of these claims are saved (not redeemed) and are advanced to the producers for future production (factor owners that do this act as capitalists).
- Others are redeemed for consumption by exchanging in the output market.
- Producers repay advances and any difference between what is consumed and what will be produced is first discounted and then paid out as profits.
Hennings remarks that the first version is more similar to post-Keynesian circular flow, but it is also the version more frequently revealed by Böhm-Bawerk. The diagrams are not in Böhm-Bawerk’s work, but are gleaned from his work by Hennings.