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Edited by Philip Arestis and Malcolm Sawyer
Chapter 2: Endogenous Money: Accommodationist
Marc Lavoie* Endogenous money is a key feature of post-Keynesian monetary economics. Kaldor (1970; 1982) and Moore (1988) were the most vocal advocates of a theory of endogenous money in the Anglo-Saxon world. Their ideas were mainly developed in the 1980s, although such ideas were also outlined as early as the 1950s. One could also go back to earlier ‘heterodox’ classical authors, such as Tooke and Fullarton in the early nineteenth century, as well as members of the Austrian school in the early twentieth century, among whom we may include Wicksell, whose pure credit economy now beneﬁts from an extraordinary revival among mainstream economists. Both Kaldor and Moore drew graphs representing either the money supply or the credit supply as completely ﬂat curves in the credit-money and interest rate space. Both argued that the supply of high-powered money and money ought to be considered as endogenous and demand-determined. By contrast, (short-term) interest rates were viewed as exogenous, under the control of the central bank, rather than market-determined, and liquidity preference explanations were relegated to the sideline. Both asserted that there could never be any excess money supply, and hence that inﬂation could not be caused by an excessively high growth rate of the money supply. In addition, these authors claimed that the central bank could not directly control the supply of money, and could not exert quantity constraints on the reserves of banks. These positions came to be known as ‘accommodationism’ or ‘horizontalism’. We shall stick to the...
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