Beyond Keynes, Volume One
Edited by Shelia C. Dow and John Hillard
Chapter 9: Some notes on the monetary debate within the Post Keynesian school
Giuseppe Fontana I INTRODUCTION Marc Lavoie has recently highlighted some of the most contentious aspects of Post Keynesian monetary theory. He argues that ‘the concept of an endogenous supply of credit-money has now been widely accepted among non-orthodox economists in general and post-Keynesian economists in particular. What money or credit endogeneity exactly means, however, has been a source of controversy’ (Lavoie, 1995: 1).1 The source of the controversy concerns the interest elasticity of the supply function and the dependence of that function on the demand function. In other words the debate is centred on two features of the money supply process. The ﬁrst feature is the degree of dependence of the central bank’s supply of reserves and commercial banks’ supply of credit on the commercial banks’ demand for reserves and agents’ demand for credit, respectively. Secondly, and related to the ﬁrst point, what degree of discretion do the central bank and commercial banks have in the choice of the interest rate level at which to oﬀer reserves and credit, respectively? In the literature diﬀerent answers to these arguments are usually summarized in terms of the slope of the credit supply function.2 This chapter attempts to provide an insight into the monetary debate within the Post Keynesian school, and then set up a framework, the monetary circuit, that encompasses the main arguments advanced in that literature. A monetary circuit is employed which describes a sequential economy, to reconcile the diﬀerent views on money. This framework provides a...
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