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Marc Lavoie

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Marc Lavoie

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Marc Lavoie

The aim of this article is to show that there exists an alternative view on monetary matters, a view distinct from both the neo-quantitative view of the monetarists and the so-called neoclassical synthesis. I shall attempt to show that this alternative view is shared by economists from both sides of the Atlantic and that their different contributions form a coherent whole. This alternative monetary theory, I shall call “post-Keynesian”. The foundation of post-Keynesian theory are radically different from those advocated by the ‘Invisible College’.

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Marc Lavoie

This article is a reply to Shirley Gedeon’s comment on my 1984 JEI article. While there is general agreement on the ability of the banking system to avoid, for some time, the pressures imposed by the central bank, there is disagreement on the details around the issue. This article will focus on the following three questions: i) what is the role of commercial banks in supplying liquidity?; ii) is the velocity of money to be considered stable or unstable; iii) can monetary authorities affect the real economy?

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Marc Lavoie

There are two dangers when starting to study money matters. One is to follow Keynes too closely, in particular his writings in the General Theory (1936). The other danger is to look to the writings of Nobel laureates on monetary issues. To acquire a clear and proper understanding of the true functioning of production money economies, one should keep clear of these authors. It is therefore important to go beyond Keynes, in particular on monetary matters, and to search for trans-Keynesian principles. Students of money economics must also be wary of those responsible for the so-called neoclassical synthesis. Tobin's present economics are a slightly modified version of 1970's Friedmanian economics. As to Paul Samuelson, although he has not directly intervened in the debates on money, he has put some of his opinions in print. In this article, I will endeavor to show that Samuelson's comments are mistaken. Those British economists who influenced the Radcliffe committee in the late 1950s do have a very clear understanding of the role and the importance of money and credit in a modern production economy. In fact, I will show that the views of these economists, which I call Cambridge post- Keynesians, are supported by a wide range of currents in monetary thought. For exposition purposes I will classify these currents under four headings: the Cambridge post-Keynesians, the American post-Keynesians, the economists of overdraft economies, and the economists of the dynamic circuit. In the remainder of the article, I will synthesize their common theses on monetary phenomena, and I will attempt to explain their divergences.

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Marc Lavoie

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.

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Marc Lavoie

My intent in this article is to throw some light on divergent opinions regarding Kaldor’s view of monetary matters, held by Friedman and Tobin, on the one hand, and Thirlwall and Thompson on the other. Kaldor’s views on domestic money went through three stages, each distant in time by about ten years. In 1958, Kaldor present his memorandum to the famous Radcliffe Committee. In 1970, he published his Lloyd ban Review article, which was designed to put a stop to the growing popularity of monetarism in Britain. In 1980, Kaldor had another go at monetarism, in his memorandum to a wide-searching House of Commons Committee, which resulted in a few articles and his 1982 book, The Scourge of Monetarism.

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Marc Lavoie

About 30 years ago, Jacques Le Bourva published two little-known articles that clearly set out the present post-Keynesian theory of endogenous money developed by Kaldor and Moore. The main features of these two articles are presented, in particular Le Bourva's belief that reverse causation. rather than the instability of the velocity function, is the key objection to the quantity theory of money and the mainstream theory of inflation. Other features include a graphical and an algebraic pedagogical representation of the theory of endogenous money. the use of the Banking school's efflux-reflux mechanism, the dismissal of the money multiplier, and the impossibility of an excess supply of money. Le Bourva's theory of inflation also resembles that adopted by many post-Keynesians, in which price increases due to excessive wage demands and attempts by firms to raise their profit margins to finance investment.

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Marc Lavoie

Alfred Eichner’s contribution to post-Keynesian economics in general, and to post-Keynesian monetary theory in particular, was ahead of its time and of great relevance today. Now, this opinion runs somewhat against the standard assessment of Eichner’s contribution to monetary theory, which is usually perceived as being very minor, perhaps even nonexistent, Eichner being viewed somehow as the man of one idea, that of markup pricing being dependent on the amount of internal funds necessary to finance capital accumulation. The purpose of this chapter is to show that, by contrast, Eichner was very much concerned with monetary economics and the financial system, and that in the course of his work, besides claiming, as many heterodox authors before him contended unproductively, that he intended to explain “the monetarized production system”, he did put forward four key concepts that are now at the forefront of post-Keynesian monetary economics. Each of these four points will be taken in turn, by relating them to present-day post-Keynesian monetary economics.

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Marc Lavoie

Although quite a lot has been written on money and credit by post-Keynesian authors, the literature on the consequent monetary policy has been rather sparse. The objectives of this chapter are to gather the little that has been written on post-Keynesian monetary policy, and to identify a few general guidelines around which post-Keynesians could agree when it comes to when it comes to non-specific monetary policy recommendations. In the following, the term post-Keynesians is meant to cover contributions on money and inflation from the so-called American post-Keynesians, as well as those of the Cambridge (England) Keynesians, and those of the neo-Ricardians. It will be obvious that the views of the radical school are quite similar. I shall start by establishing how I view the links which exist between circuit theory and post-Keynesian theory.