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The focus on a monetized production economy is, for many post-Keynesians, a distinctive feature of the post- Keynesian school. Thus, it comes as no surprise that post- Keynesian monetary theory claims to be distinct from orthodox monetary theory. In the next section of thischapter, we go over the main claims of the post- Keynesian theory of money, credit and finance. In the third section, we put these into historical perspective. The fourth section deals with what has perhaps attracted the greatest amount of attention – the controversies between horizontalists and structuralists in post- Keynesian monetary theory. The fifth section is a discussion of the new developments in monetary policy implementation. The sixth section deals with the implications of these developments in the aftermath of the subprime financial crisis, while in the seventh section we assess these implications for public finance theory, tackling the socalled ‘neo- chartalist’ view. Finally, in the eighth section we discuss the integration of post- Keynesian monetary economics into post- Keynesian macroeconomics.
The purpose of this chapter is to help teachers in presenting the main features of a modem financial system. To do so, the T-accounts of banks and central banks, where assets must by necessity balance with liabilities, will be presented in a systematic way, starting from the simplest pure credit economy, with a single bank and without central banks and outside currency. Complications will be gradually introduced, such as competing private banks, a central bank and its reserve requirements, and then, at a later stage, the State with its financial requirements and its issues of government bonds. Recent developments in banking, such as capital adequacy ratios, zero-reserve requirements, repos, securitisation, and electronic money will also be discussed within the framework of the T-accounts.
Marc Lavoie and Mario Seccareccia have, together with John Smithin, been leading voices in recent discussions on monetary theory. Among Post-Keynesians they have stood out for their willingness to engage with the rapid evolution of policy, in the wake of the financial crisis of 2008, and for their creative approach to the doctrines of Post-Keynesian analysis. This chapter is therefore dedicated to them formally as well as in the sense that it presents a view of financial crisis that, in many respects, complements their original insights. There are few monetary economists today who doubt the idea that the supply of money is endogenous. That the number of such doubters is so reduced is, in good measure, due to the compelling case for endogeneity that has been put forward by the Canadian Post-Keynesians. The banking and financial crisis, however, stands out as something of an anomaly in this approach to monetary theory: if money, or credit, is generated by processes inherent in the functioning of the credit system according to need, then, by definition, a financial crisis cannot arise because of a shortage of credit. Such crises must be because banks refuse to lend as much as is necessary, or because of some disturbances in the price mechanism (a fall in asset prices, or a fall in the rate of profit in relation to the rate of interest).
Louis-Philippe Rochon and Hassan Bougrine
The names of Marc Lavoie and Mario Seccareccia have been associated with one another for well over four decades, during which time they made important contributions to post-Keynesian economics in general, but have also been associated with an array of more specific topics, including the theory of the monetary circuit, economic growth, fiscal policy, monetary policy/theory and endogenous money, growth theory, and microeconomics, among others. Individually or together, they contributed a vast arsenal of both critical and constructive papers and books: close to 300 journal and book articles, as well as a number of books, authored and edited, including the Canadian version of the American micro–macro textbook by Baumol and Blinder (see Baumol et al., 2009a; 2009b). Throughout their long and distinguished careers, their contributions have pushed post-Keynesian and heterodox economics in many interesting and fruitful directions, and they have influenced a number of scholars as well as students around the world. Steadfast in their criticism of neoclassical – or orthodox or mainstream – economic theory, as well as their rejection of mainstream policies, in particular fiscal austerity and fine-tuning monetary policy, Lavoie and Seccareccia have shared a vision of a more real-world view of economics, where institutions mattered.
Edwin Le Heron
Money is an institution that can only function when it perfectly manages the relationship between sovereignty and confidence. The foundation of this monetary relationship can focus on two directions: either a top-down process based on sovereignty so as to justify public confidence in the money; or a bottom-up process starting from building confidence through coordination and learning among individuals to explain the organization of a sovereign monetary authority. Starting from the three hierarchical levels of confidence (methodical, hierarchical and ethical) highlighted by Michel Aglietta and André Orléan (2002), the first process emphasizes the importance of a sovereign political power as the foundation of confidence and multiplies the rules and norms necessary for methodical confidence, while being a guarantor of the social values in the monetary compromise issuing from ethical confidence. The monetary order is based on the exercise of hierarchical political power from top to bottom. Money thus becomes a ‘total social fact’ (Simmel quoted in Aglietta, 2008, p. 4).