Theory Of Endogenous Money Research Articles

Ecological monetary economics: A post-Keynesian critique

The monetary analysis of some ecological economists currently appears to be mostly articulated around the following core: a stationary economy (and a fortiori a degrowth economy) is incompatible with a system in which money is created as interest-bearing debt. To question the relevance of the debt-money/positive interest rate/output growth nexus, this paper adopts a critical stance towards the currently emerging ecological monetary economics from the standpoint of another strand of heterodox economics – the post-Keynesian approach. In its current state, ecological monetary economics is at odds with post-Keynesian economics in its analysis of the money–growth relationship. This will be shown using the theory of endogenous money and a simple Cambridgian–Kaleckian model where debt-money and a positive interest rate are compatible with a full stationary economy.

К теории денежной деградации, или посткейнсианский анализ монетарных проблем российской переходной экономики в 1991–1998 годах

The paper develops Post Keynesian theory of endogenous money and applies it to analysis of changes in monetary circulation in the Russian transitional economy in 1991-1998. These changes were characterized by displacement of bank deposits by cash, barter and inter-firm arrears as special means of payment. Author treats this process as «monetary degradation» because it created additional barriers to financing investment, made for criminalization and contributed to cost-push inflation. All this could be ruinous for creation of monetary capitalist economy in Russia. The main cause of monetary degradation is associated with inability of the government to enforce effectively contracts due to sharp institutional changes generated by shock therapy policy. The paper also focuses on the «legacies» of monetary degradation which matter at the present time. These are low coefficient of monetization, large M0/M2 ratio and absence of such monetary aggregates as M3 and M4. All these phenomena are the barriers to rapid and steady economic growth not based on rising oil prices. So, money structure can be considered as both institutional feature and macroeconomic variable.

Understanding the global financial crisis: contributions of post-Keynesian economics

Post-Keynesian economics has greatly improved our understanding of the causes as well as some of the consequences of the Global Financial Crisis. This paper deals with some examples related to monetary issues—namely, the financial instability hypothesis of Minsky and its extension to the household sector, as well as the post-Keynesian theory of endogenous money, with its extension to quantitative easing policies set within a framework where the central bank’s target rate of interest is set equal to the rate of interest paid on reserves.

Monetary targeting in Sri Lanka: how much control does the central bank have over the money supply?

This paper empirically addresses the questions “is money supply in Sri Lanka endogenous or exogenous and how much control does the Central Bank have over the money supply?” Thus the paper also examines the viability of the current monetary targeting policy regime. Two complementary approaches are used. The first is the monetarist approach and tests whether money supply is exogenously determined by testing the stability of the broad money multiplier and by testing for a long-run relationship between monetary base and broad money supply. The second approach tests the Post-Keynesian contention that the money supply is endogenous with the financial system as a whole causing changes to the money supply through bank lending creating monetary liabilities. The findings indicate the broad money multiplier is not stable and the tests of the endogenous money theory shed light on why it is unstable. The overall results cast doubt the effectiveness of the current monetary targeting policy regime in Sri Lanka.

Post Keynesian Theory and Evidence of Money Supply Endogeneity: A Review Essay

Money is the life-blood of any modern market-oriented economy. The level of money supply - the quantity and velocity of money circulated in such an economy would determine its health. The central issue in managing the economy is to understand how money supply is determined. The history of modern monetary economics actually has witnessed the emergence of two opposing views pertaining to the role of central bank in controlling the supply of money in an economy. A group of economists, known as monetarists, under the influence of Milton Friedman, contended that money supply in an economy is exogenously determined. Post Keynesian however holds the view that money supply is endogenously rather than exogenously determined. Examining the theory of endogenous money as well as empirical work, the present paper has found that money supply in several countries is endogenously determined.

Where did the money go? Endogenous money creation for international fraudulent purposes: the case of the 2015 Moldovan banking scandal

We investigate the biggest banking scandal ever in the History of the Republic of Moldova, based on the Kroll Report published in 2015, which focuses on three commercial banks that account for a third of the country's banking sector. Firstly, we present a brief synopsis of the 2015 Moldovan banking scandal. Secondly, we investigate the under-explored issues of corporate governance structures of both lenders and borrowers as well as the impact of transnational financial engineering practices in the context of endogenous money theory. Finally, we sketch out the implications of the 2015 Moldovan banking scandal for post-Keynesian monetary theory by, on the one hand, rehabilitating the concept of endogenous finance, and on the other hand, by demonstrating how the scandal is best conceptualised by elaborating a new framework focusing on the interface between transnational financial elites and the shadow banking system in transition economies.

Where Did the Money Go? Endogenous Money Creation for International Fraudulent Purposes The Case of the 2015 Moldovan Banking Scandal

On Monday 4 May 2015, the speaker of Parliament of the Republic of Moldova published the Kroll report on his Internet blog after thousands of people rallied on Sunday 3 May in the capital, Chisinau, to protest against endemic corruption in the country, and demand recovery of the missing billions in the Ilan Shor group scandal. The Kroll report aims at investigating the apparent theft of nearly one-fifth of the country's annual GDP. In a spectacular lender-of-last resort move, the Moldovan central bank was forced to issue some 16 billion lei ($870 million) in emergency loans to keep the economy afloat. The Kroll report focuses on three commercial banks that account for a third of the country's banking sector. These banks were subject to significant shareholder change, which had the effect of transferring ownership to a series of apparently unconnected individuals and entities in Russia, Ukraine, the UK and Moldova with various actors linked to notorious tax havens such as Seychelles or the Marshall islands.Despite the opacity of the web of complex transactions that led to the scandal, rarely have we been in possession of so much quality information about actual banking operations involving billions of dollars (or the equivalent in foreign currency). What are the learning lessons of this gigantic banking scandal in the Republic of Moldova for Post-Keynesian monetary theory?Part 1 presents a brief synopsis of the 2015 Moldovan banking scandal. In part 2, we investigate the under-explored issues of corporate governance structures of both lenders and borrowers as well as the impact of transnational financial engineering practices in the context of endogenous money theory. Part 3 sketches out the implications of the 2015 Moldovan banking scandal for post-Keynesian monetary theory by, on the one hand, rehabilitating Palley's concept of endogenous finance, and on the other hand, by demonstrating how the scandal is best conceptualized by elaborating a new framework focusing on the interface between transnational financial elites and the shadow banking system in transition economies.

Endogenous Money and the Natural Rate of Interest: The Reemergence of Liquidity Preference and Animal Spirits in the Post-Keynesian Theory of Capital Markets

Since the beginning of the fall of monetarism in the mid-1980s, mainstream macroeconomics has incorporated many of the principles of post-Keynesian endogenous money theory. This paper argues that the most important critical component of post-Keynesian monetary theory today is its rejection of the “natural rate of interest.” By examining the hidden assumptions of the loanable funds doctrine as it was modified in light of the idea of a natural rate of interest — specifically, its implicit reliance on an “efficient markets hypothesis” view of capital markets — this paper seeks to show that the mainstream view of capital markets is completely at odds with the world of fundamental uncertainty addressed by post-Keynesian economists, a world in which Keynesian liquidity preference and animal spirits rule the roost. This perspective also allows us to shed new light on the debate that has sprung up around the work of Hyman Minsky, calling into question to what extent he rejected the loanable funds view of financial markets. When Minsky’s theories are examined against the backdrop of the natural rate of interest version of the loanable funds theory, it quickly becomes clear that Minsky does not fall into the loanable funds camp.

Horizontalists, verticalists, and structuralists: the theory of endogenous money reassessed

This paper uses the occasion of the 25th anniversary of Basil Moore's book, Horizontalists and Verticalists, to reassess the theory of endogenous money. The paper distinguishes between horizontalists, verticalists, and structuralists. It argues Moore's horizontalist representation of endogenous money was an over-simplification that discarded important enduring insights from monetary theory. The structuralist approach to endogenous money retains the basic insight that the money supply is credit-driven but remedies horizontalism's omissions and over-simplifications. Twenty-five years later, horizontalism has largely morphed into structuralism. The theoretical challenge going forward is to develop the role of money and finance in a Keynesian theory of output determination. As regards monetary policy, the challenge is how to conduct policy in a world of endogenous money. These concerns emanate naturally from a structuralist perspective on endogenous money.

John E. King

We outline the core claims of Basil Moore's book Horizontalists and Verticalists: The Macroeconomics of Credit Money and place them in their historical, contemporary and present contexts. Several theoretical problems raised by the book and recent developments in the operation of financial markets and monetary policy are discussed. We find that Moore is a key figure in the theory of endogenous money, but his version of the theory was viewed as radical and was by no means widely accepted. Recent developments have validated many of his ideas, which are now commonplace, but others remain unresolved and controversial.

What's the use of banks, especially after the crisis?

Since the outbreak of the crisis, banks appear at best useless and at worst harmful. The recent standard theory indeed constructed an analysis showing that banks had nothing specific to offer. However, the theory of endogenous money provides a consistent monetary theory and gives to the bank a particular place, eventually central. This analysis thus makes it possible not only to define the role and functions of banks but also to capture the recent developments in the banking system and the malfunctions they generate.

Monetární nerovnováha v teorii endogenních peněz

The article deals with monetary disequilibrium in the theory of endogenous money. In new consensus economics, monetary disequilibrium is not considered whereas money is endogenous and passive. In post-Keynesian economics, there is an explicit discussion about reconciliation of money demand and supply. Based on careful distinction between money and credit markets, it is argued that monetary disequilibrium can occur even when money is endogenous and therefore money is endogenous and active. This is because of insufficiency of reflux mechanism. The article suggests ways in which new consensus should be supplemented to incorporate this issue. This is also important for monetary policy otherwise a part of transmission mechanism is left out.

The Role of Credit in the Theory of Endogenous Money - A Post-Keynesian Analysis of Credit Institutions

The theory of endogenous money is the cornerstone of Post-Keynesian economics, which dates back to the pioneering writings of authors such as J. Robinson, Kaldor and Kalecki. Second generation Post-Keynesians such as Paul Davidson and Basil Moore have clearly drawn the boundaries of Post-Keynesian theory in accordance with Keynes' intellectual legacy and economic thought. Post-Keynesian monetary theory was openly critical of classical economics and also proved to be a constructive attempt to provide an alternative theoretical framework to the unsatisfactory IS/LM model, which assumed an exogenous money supply as well as an endogenous rate of interest.Firstly, we will study the genesis, the epistemology and the recent developments of the endogenous money theory through its opposition to the quantity theory of money, the still prevailing paradigm in contemporary monetary theory. Secondly, we will establish the complete reversal of the quantity theory of money by the endogenous theory of money in the recent history of economic thought. Finally, once this reversal has been established, a Post-Keynesian analysis of credit institutions will help us determine new solutions for economic policy aiming at full employment. Following Keynes' ideas, Post-Keynesians are concerned with the means to reach the full employment objective and therefore with economic policy. Post-Keynesianism is not an esoterical attempt to debate, once more, the ontological nature of money but is rather a practical reflection on the optimal economic policies resting on an in-depth understanding of money and credit.

Central Banking and Post-Keynesian Economics

The Post-Keynesian theory of endogenous money has given much attention to the role of the central bank in the money creation process. Circuit theory has neglected this role, in so far as it has focused on the relationship between banks and firms within a monetary production economy. The aim of this paper is therefore twofold. First, it intends to fill this gap in circuit theory, by providing a role for the central bank in settlement of interbank debts. Secondly, it aims at reinforcing the Post-Keynesian analysis of central bank money by considering both the money-purveying and the credit-purveying roles of the settlement institution in the interbank market. The result of this analysis is a more comprehensive theory of endogenous money, where the lender-of-last-resort facilities of a central bank are viewed as an endogenous phenomenon involving both a money creation and a credit operation between the central bank and the domestic banking system. In such a framework, monetary policy consists of setting the base rate of interest at a level that enables banks to limit their bilateral debt position in the interbank market, so as not to disrupt the workings of the payment system by either an illiquidity or an insolvency crisis.

The New Consensus and Post-Keynesian Interest Rate Policy

This paper outlines the fundamental arguments of the New Consensus, critiques it from a Post-Keynesian perspective, and offers a Post-Keynesian alternative to the Taylor Rule. While Post-Keynesian economics provides a theory of endogenous money with exogenous interest rates, it has no clear description of a central bank reaction function. We attempt to remedy this oversight by identifying some of the difficulties attached to developing a Post-Keynesian reaction function, and suggesting an approach to the setting of interest rates that is more consistent than the Taylor Rule with Keynes's General Theory.

Pay-As-You-Go versus funded systems. Some critical considerations

Longer life expectancy and lower fertility rates will lead to an ageing population in most Western countries. This is thought to make earnings-based defined-benefit pay-as-you-go pension schemes unviable in the near future. Some economists suggest shifting towards a capitalized funded system grounding their proposal on the following advantages: (i) it raises national saving, thus leading to a faster rate of accumulation and a larger per capita income; (ii) it offers a higher rate of return on savings; (iii) it is immune to demographic shifts. In this paper we explore the fundamentals of these advantages, and conclude that the theoretical basis supporting them is very weak. We base our theoretical standpoint on the Sraffian-based capital critique and the theory of endogenous money. Additionally, we defend a parametric reform of a standard PAYG using figures that correspond to the Spanish economy for the period 2001–70.

Joan Robinson and Keynes: finance, relative prices and the monetary circuit

Joan Robinson's views on credit and money are discussed only rarely. Of late, however, some Post-Keynesians have sought to revive these views, claiming that Robinson was one of the original contributors to the theory of endogenous money, post Keynes. This paper has two objectives. First, it seeks to develop Robinson's views on credit, money and finance and to show that not only did she have a clear understanding of the theory of endogenous money, but that she also held views akin to the theory of the monetary circuit. Second, the paper addresses Robinson's dismissal of the problem of relative prices and the conventional theory of value. Once again, it shows that Robinson's position is connected closely with the model of the monetary circuit as a basis of her theory of accumulation.

Endogenous Money: An Analytical Approach

AbstractThe paper proposes a constructive interpretation of the Post Keynesian debate between horizontalists and structuralists. Both approaches defend an endogenous money theory, but they discriminate between different analyses of the credit market and the reserve market. A more general model encompassing both approaches is presented here and some of its implications are discussed.

Post Keynesian Approaches to Endogenous Money: A time framework explanation

Over the last two decades, work on the Post Keynesian theory of endogenous money has been flourishing, and has prompted a rethinking of the complex nature of money in modern economies. At the heart of the debate between what have now been labelled the accommodationist (or horizontalist) approach and the structuralist approach to endogenous money are the issues of the slope of the supply curves of reserves and of credit money, respectively. Using the distinction between a single period analysis and a continuation analysis, similarities and differences between those approaches are explained, and the suggestion is then made for retaining and re-interpreting them into a more general theory.

The Making of Monetary Policy in Endogenous Money Theory: An Introduction

Endogenous money theory has ancestors in the contributions of the Banking school and in the writings of Keynes, Kalecki, Robinson, Schumpeter, and Wicksell. In the 1970s and 1980s, Davidson (1977), Kaldor (1970), and Moore and Threadgold (1980) powerfully brought it forward against the monetarist view of the transmission mechanism. It is now one of the main cornerstones of Post Keynesian economics. Its foundations are built around the principle of interdependence between the monetary and real sectors: the stock of money in a country is determined by the demand for bank credit, and the latter originates in the needs of finance for productive and speculative activities. In a nutshell, money is credit-driven and demand-determined. As shown by the numerous contributions in this journal, but also in the Cambridge Journal of Economics, Journal of Economic Issues, Metroeconomica, and Review of Political Economy, endogenous money theory has recently been the object of intense internal and external debates. In particular, the last two decades have witnessed several refinements to its basic propositions, together with encouraging signs of fresh empirical evidence (for example, Arestis and Biefang-Frisancho Mariscal, 1995; Caporale and Howells, 2001; Deriet and Seccareccia, 1996; Hewitson, 1997; Howells and Hussein, 1999; Nell, 2000-2001; Palacio-Vera, 2001; Palley, 1994). As for the result of internal debates, Post Keynesians have advanced our understanding of the behavior of all agents involved in the money supply process. The different arguments have been presented in terms of the distinction between single-period analysis and continuation analysis (Fontana, 2001). The former is based on the assumption that the state