Review of Keynesian Economics

Endogenous money, circuits and financialization *

Malcolm Sawyer *

Keywords: endogenous money, monetary circuit, financial instability


This paper locates the endogenous money approach in a circuitist framework. It argues for the significance of the credit creation process for the evolution of the economy and the absence of any notion of ‘neutrality of money’. Clearing banks are distinguished from other financial institutions as the providers of initial finance in a circuit whereas other financial institutions operate in a final finance circuit. Financialization is here viewed in terms of the growth of financial assets and liabilities, of non-bank financial institutions and changes in the predominant flow of funds between firms, households and rentiers. Some of the issues for the way in which the circuit analysis is developed are considered.

Author Notes

This paper reflects research being conducted within the project Financialisation, Economy, Society and Sustainable Development (FESSUD) ( which is a 5-year project funded by the European Commission Framework Programme 7 (contract number 266800). Discussions with Marco Passarella have informed the work here though without implicating him in the use to which I have put those discussions. I am grateful to Phillip Arestis for comments on an earlier draft.

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