Review of Keynesian Economics

Aggregate demand, endogenous money, and debt: a Keynesian critique of Keen and an alternative theoretical framework

Thomas I. Palley *

Keywords: endogenous money, credit, aggregate money, velocity of money


This paper presents a Keynesian critique of Steve Keen's treatment of the aggregate demand–credit–endogenous money nexus. It argues his analytic intuition is correct but is developed in the wrong direction. Keen's fundamental relation describing determination of AD in an endogenous credit money economy suffers from two flaws. First, it neglects the core Keynesian problematic of leakages from and injections into the circular flow of income. Second, it falls into the theoretical morass regarding the black box of velocity of money via its adoption of a form of Fisher equation to determine AD. The paper contrasts Keen's treatment with a Keynesian structural framework.

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