Review of Keynesian Economics

Credit supply, credit demand and unemployment in the mode of Augusto Graziani

Guglielmo Forges Davanzati * *

Keywords: endogenous money, bank credit, labour market


Evidence shows that, in most European countries, both credit restriction on the part of banks and reduction of the demand for credit on the part of firms are in operation. This is particularly intense in Italy. The aim of this paper is to show that both phenomena ultimately depend on the decline of aggregate demand, insofar as it negatively affects firms’ current and expected profits. A macroeconomic schema is presented, based on Graziani's view that the operation of the credit market can trigger economic crises. Keynesian and Institutional arguments are also considered in order to analyse the links existing between the dynamics of the credit market and the path of wages and employment.

Author Notes

Email: This paper is an expanded version of the paper (with Rosario Patalano) on ‘Credit supply, credit demand and unemployment: a post-Keynesian-Institutional approach’, discussed at the 17th Conference of the Research Network Macroeconomics and Macroeconomic Policies (Berlin, October 2013). A preliminary draft of this paper has been presented at the seminar ‘A monetary production economist: the legacy of Augusto Graziani’ (University of Bergamo, February 2014) and at the international seminar in honour of Augusto Graziani held in Paris in January 2015. I thank the participants at these conferences, Riccardo Bellofiore, Stefano Figuera, Arturo Hermann, Warren Mosler, Andrea Pacella, Mario Seccareccia, Andrea Terzi, Jan Toporowsky and an anonymous referee for their useful suggestions. The usual disclaimer applies.

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