Credit, Money and Macroeconomic Policy
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Credit, Money and Macroeconomic Policy

A Post-Keynesian Approach

Edited by Claude Gnos and Louis-Philippe Rochon

With recent turmoil in financial markets around the world, this unique and up-to-date book addresses a number of challenging issues regarding monetary policy, financial markets and macroeconomic policy.
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Chapter 5: Money Creation, Employment and Economic Stability: The Monetary Theory of Unemployment and Inflation

Alain Parguez


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 of true policy makers in a ‘hard-squeeze economic policy’ by explaining the core principles of modern monetary economy, as long as they are sustained by hard empirical studies. Next, I became aware of a converging set of criticisms arising from economists of various orientations: the monetary circuit theory is not worthy of attention because it is not embodied in any models; it cannot explain what a sensible economic policy should be because it ignores the stock dimension and, worst of all, it postulates full employment (Kregel, 2006; Accoce and Mouakil, 2007). I shall ignore the last accusation since most of my previous work has dealt with explanations of unemployment. I do not understand why emphasizing money exists to remove the scarcity constraint is tantamount to a super-postWalrasian or Say-like theory. It is true that I reject the Keynesian liquidity preference theory (I am not the only one) but only because it lacks sensible foundations in a true monetary economy. As for ignorance of the ‘stock dimensions’ and thus the role of capacity utilization, the reproach is illfounded. It is...

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