Abstract
The debate about whether or not a growth imperative exists in debt-based, interest-bearing monetary systems has not yet been settled. It is the goal of this paper to introduce a new perspective in this discussion. For that purpose, an SFC computational model is constructed that simulates a post-Keynesian endogenous money system without including economic parameters such as production, wages, consumption and savings. The case is made that isolating the monetary system allows for better analysis of the inherent properties of such a system. Loan demands, which are assumed to happen, are the driving force of the model. Simulations can be run in two modes, each based on a different assumption. Either the growth rate of the money stock is assumed to be constant or the loan ratio, expressed as a percentage of the money stock, is assumed to be constant. Simulations with varying parameters were run in order to determine the conditions under which the model converges to stability, which is defined as converging to a bounded debt ratio. The analysis showed that the stability of the model is dependent on net bank profit ratios, expressed relative to their debt assets, remaining below the growth rate of the money stock. Based on these findings, it is argued that the question about the existence of a growth imperative in debt-based, interest-bearing monetary systems needs to be reframed. The question becomes whether a steady-state economy can realistically support such a system without destabilising it. In order to answer this question, the real-world behaviour of economic actors must be included in the model. It was concluded that there are indications that it might not be feasible for a steady-state economy to support a stable debt-based, interest-bearing monetary system without strong interventions. However, more research is necessary for a definite answer. Real-world observable data should be analysed through the lens of the presented model to bring more clarity.
Highlights
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations
This paper focuses on an analysis of a computational stock- and flow-consistent (SFC) model (Nikiforos and Zezza 2017) based on post-Keynesian endogenous money supply theory
A common definition of the systemic boundaries of post-Keynesian money supply systems is needed in order to be able to settle the argument about the existence of an inherent growth imperative in those systems
Summary
“Money has always been something of an embarrassment to economic theory. Everyone agrees that it is important; much of macroeconomic policy discussion makes no sense without reference to money. This paper focuses on an analysis of a computational stock- and flow-consistent (SFC) model (Nikiforos and Zezza 2017) based on post-Keynesian endogenous money supply theory. This theory, which states that money is created by banks when issuing loans, has started to be more widely accepted since the publication by the Central Bank of England (McLeay et al 2014). The model presented in this paper is reduced to the minimum elements needed for a post-Keynesian money supply model to be simulated: loan demand and settlement of debt. After the determination of the properties of the computational model, this assumption was analysed regarding its feasibility in conjunction with a reflection on real-world economic parameters
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
