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Edited by Louis-Philippe Rochon and Sergio Rossi

coinage, is a mere administrative process. The creation of credit-money, however, is completely different. Mainstream economists neglect its study. Most economists are conscious that banks create credit-money. For instance, the fact that Friedman ( 1959 ) wanted to forbid the creation of money by commercial banks implies that he knew very well that they created money. This did not prevent him, however, from writing that everything occurs as if money were dropped from a helicopter (Friedman, 1969 ). Thus he considered useless the study of how credit-money is created

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Pascal Salin

The International Monetary System and the Theory of Monetary Systems 5.  Money creation Throughout this book it will be necessary to study the creation of money, since it is a key concern of any analysis of monetary systems. For the moment, I will make a few very general remarks. Thus, this chapter will successively take the example of a real currency (for example, a metallic currency such as gold), and the example of a fiduciary currency, that is, a currency which has no intrinsic value, but the value of which is determined only by the greater or

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Edited by Louis-Philippe Rochon and Sergio Rossi

, there is no corresponding decrease in domestic consumption spending. But there will be a corresponding lack of funds in the countries where these savings have been formed. All countries together (the world economy) can only expand if additional funds are provided by money creation of banks. Therefore, savings cannot be the ultimate source of finance for economic growth. According to Keynes ( 1939 , p. 572), investment determines saving and not the other way around: “Credit expansion provides not an alternative to increased saving but a necessary preparation for it

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Pascal Salin

The International Monetary System and the Theory of Monetary Systems 11.  Money creation in hierarchical systems Let us consider a nation in which a national currency is circulating and let us be unaware, for the time being, of the existence of other national currencies (which will subsequently be reintroduced in the reasoning). During the greatest part of monetary history, monetary units consisted of real commodities, such as gold or silver coins. But nowadays the monetary units are mostly claims on banks (apart from coins of small denominations

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John Smithin

5. Credit creation, the monetary circuit and the formal validity of money John Smithin1 INTRODUCTION There are three main sources for the argument of this chapter. The first is the work of Professor Alain Parguez, whose contributions we are honouring in this volume. Alain Parguez is a distinguished member of the late twentieth-­century ‘Franco-­Italian’ circuit school of monetary theory and, in particular, he has played a key role in communicating the insights from that perspective to like-­minded economists in other traditions (Parguez 1996, 1999, 2011; Parguez

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Ryland Thomas

3. UK broad money growth and nominal spending during the Great Recession: an analysis of the money creation process and the role of money demand* Ryland Thomas In the UK the annual rate of broad money growth slowed from doubledigit figures in mid-2007 to a rate of just under 1 per cent in early 2010, the weakest number since the Selwyn Lloyd squeeze in the early 1960s (see Figure 3.1). Nominal spending during 2008 and 2009 fell in absolute terms for the first time since the Great Depression of the 1930s and at a rate not seen since the extraordinary nominal

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Alain Parguez

5. Money creation, employment and economic stability: the monetary theory of unemployment and inflation Alain Parguez INTRODUCTION This contribution should be read as the core of two chapters of a forthcoming book co-authored with Jean-Gabriel Bliek and Olivier Giovannoni, the provisional title being ‘Money creation, employment and economic stability’. It is the outcome of a converging set of events which dismissed my previous doubts. First, a discussion with Bliek at the European Investment Bank (Luxembourg) convinced me that it was possible to shake the faith

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Christopher J. Niggle

purpose of this chapter is to investigate the role of the endogenous-money theory in the development of evolutionary post-Keynesian macroeconomics, in which money and the process of money creation are both analysed as evolving institutions. The next section discusses the revival of endogenous-money theory as part of the post-Keynesian critique of both monetarism and the neoclassical-synthesis version of Keynesianism (Joan Robinson’s (1962) ‘bastard Keynesianism’). The third section discusses some controversies and debates regarding the theory within the evolutionary

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Tim Congdon

like, they can repay a bank loan, so destroying money balances and eliminating the excess supply of money. Conversely, if they have deficient money (again relative to the desired quantity), they can use up more of the overdraft facilities, adding to the quantity of money and ending the excess demand for money. But this entirely reasonable observation about the logic of money creation is sometimes followed by an extraordinary leap in empirical generalisation. The leap is to assert that the demand to hold money is always equal to the supply, as determined by credit

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Thomas I. Palley

that rate. They are price-setters and quantity-takers. Bank lending determines deposit creation and thereby determines the money supply. The central bank then adjusts the supply of reserves to back deposits created by bank lending. It does so by buying bonds from or selling bonds to the non-bank public, thereby injecting or draining reserves according to the needs of banks based on their lending activity. There are several important features about the simple horizontalist model. First and foremost, loans create deposits. This is a completely different description of