Post-Keynesians disagree about whether money is intrinsically endogenous, or whether it has become endogenous over time with the emergence of modern central banking. In this chapter, monetary history and institutional analysis are brought to bear on the issue. The chapter examines two early monetary systems that lacked central banks: metallic money in fifteenth- to seventeenth-century western Europe, and paper money in eighteenth-century Britain and British North America. These systems are found to have been imperfectly endogenous, owing to inadequacies in their mechanics of supply. Furthermore, endogeneity did not evolve in an unremittingly forward path historically, as the literature suggests: in some respects, metallic-money systems were more flexible than paper-money systems.
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Louis-Philippe Rochon and Sergio Rossi
What precisely is endogenous money? Does the central bank always accommodate banks’ demand for central-bank money? Does it have the ability to increase the money supply exogenously? Can it really have the rate of interest of its choice? Has money always been endogenous or has it become endogenous through time with the advent of certain institutions? This volume shows that a proper understanding of money is still required, and that the institutional actions of central banks reveal how recent so-called unconventional policies are doomed to fail. Revisiting the fundamental elements of the theory of endogenous money leads to completely different sets of monetary policy recommendations.
Edited by Louis-Philippe Rochon and Sergio Rossi
Pablo Gabriel Bortz
This paper sets out to find commonalities and divergences in the writings of Marx, Kalecki and Keynes regarding their analysis of social (class) conflict in capitalist societies. We find evidence that shows that, contrary to a harmonious view of society, Keynes had a class stratification of society and an understanding of conflictive interests and developments compatible with that of Marx and Kalecki. The presence of political motivations as fuel for economic instability is another shared element between Kalecki and Keynes. Differences arise regarding the relative importance of the inter- and intra-class dynamic as a driver of distributive conflict, and the State's capabilities to guide or control those conflicts and their consequences.
Antonin Pottier and Adrien Nguyen-Huu
We examine to what extent the Keen model (Keen 1995) is a faithful modelling of Minsky's financial instability hypothesis. We focus on debt, money, and debt-induced crisis. We propose a clear interpretation of the debt: households lend unconsumed income to firms to finance their investments, and money creation is not necessary. We offer a detailed description of the economic collapse and analyse its causes thanks to numerical experiments. The crisis is triggered by profits squeezed by wages and not by debt overhang. We test alternative assumptions on the investors’ behaviour to show that behaviour at very low profits is fundamental. We conclude that the Keen crisis has few Minskyan flavours.
Roger E.A. Farmer
This paper explains the connection between ideas developed in my recent books and papers and those of economists who self-identify as post-Keynesians. My own work is both neoclassical and ‘old Keynesian.’ Much of my published work assumes that people have rational expectations and that ‘animal spirits’ should be modeled as a new fundamental. I adopt a general equilibrium framework to model the macroeconomy. But although I write from a neoclassical tradition the themes I explore in my published writing have much in common with heterodox economics. This paper explains the common elements between these seemingly disparate traditions. I make the case for unity between post-Keynesian and general equilibrium theory under the banner of post-Keynesian dynamic stochastic general equilibrium theory.
Sebastian Gechert, Torsten Niechoj, Engelbert Stockhammer, Achim Truger and Andrew Watt
Prices, Production and Consumption
This chapter is an introduction to the most important topics regarding the crude oil market. Several data and facts of the market are briefly presented. An outstanding feature of crude oil at the core of public debates is its character as a fossil and non-renewable fuel. The chapter enlightens what this means in economic terms and how it is connected to the investigation at hand. As another issue, recent research on the oil market has, to a great part, focused on the driving forces of the oil price. In particular, our interest is in the question of whether economic fundamentals are the only factors influencing the price or whether speculation may also be effective. Finally, the role of OPEC and its potential power to impact on the oil market is considered.
Stephen A. Marglin
The central question this paper addresses is the same one I explored in my joint work with Amit Bhaduri 25 years ago: under what circumstances are high wages good for employment? I extend our 1990 argument in three directions. First, instead of mark-up pricing, I model labor and product markets separately. The labor supply to the capitalist sector of the economy is assumed à la Lewis to be unlimited. Consequently the wage cannot be determined endogenously but is fixed by an extended notion of subsistence based on Smith, Ricardo, and Marx. For tractability the product market is assumed to be perfectly competitive. The second innovation is to show how disequilibrium adjustment resolves the overdetermination inherent in the model. There are three equations – aggregate demand, goods supply, and labor supply – but two unknowns – the labor–capital ratio and the real price (the inverse of the real wage). Consequently equilibrium does not even exist until we define the adjustment process. The third innovation is to distinguish capital deepening from capital widening. This is important because, ceteris paribus, wage-led growth is more likely to stimulate the economy the greater the fraction of investment devoted to capital deepening. A final section of the paper shows that US data on employment and inflation since the 1950s are consistent with the theory developed in this paper.
Amit Bhaduri and Srinivas Raghavendra
This paper generalizes the principle of effective demand to incorporate banking and finance as two distinct sectors. The traditional commercial banking sector is regulated and the modern shadow banking sector is mostly an unregulated provider of financial services. Through a stylized model the interconnectedness between the two sectors is analysed. The analysis shows how an almost infinite supply-side capacity of finance is created and explores its relation to the level of aggregate demand in the real economy. The impact of finance on the real economy is explored in both profit- and wage-led regimes at different levels of interconnectedness between commercial and investment banking.