Advances in Endogenous Money Analysis
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Advances in Endogenous Money Analysis

Edited by Louis-Philippe Rochon and Sergio Rossi

The endogenous nature of money is a fact that has been recognized rather late in monetary economics. Today, it is explained most comprehensively by the theory of money in post-Keynesian monetary theory. The expert contributors to this enlightening book revisit long-standing debates on the endogeneity of money from the position of both horizontalists and structuralists, and prescribe new areas of research and debate for post-Keynesian scholars to explore.
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Chapter 9: The principle of effective demand and the state of post-Keynesian monetary economics

Colin Rogers

Abstract

This chapter provides a definition of the principle of effective demand that is consistent with The General Theory and applies it to illustrate Keynes’s claim for the existence of long-period unemployment equilibrium and as the basis for his policy proposals. The principle of effective demand is then applied to illustrate that although some post-Keynesian models incorporate the endogeneity and non-neutrality of money, these models do not capture the properties of the principle of effective demand, particularly the distinction between the rate of interest and the marginal efficiency of capital. From this perspective the endogeneity of money is an implication of Keynes’s proposal to gain control of the rate of interest by nationalizing the Bank of England.

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