Money, Finance and Interest Rates

Abstract

In this chapter, we begin with a consideration of the views of Kalecki on the nature of money, specifically that in conditions of developed capitalism money is predominantly credit money created by the banking system. This leads into consideration of the way in which the banking system and the expansion of the money supply is an important ingredient in any expansion of the economy. Specifically, there is a need to consider the financing requirements of an expansion of investment demand. The interaction of the demand for money by the public and the banks’ willingness to supply money are seen as determining short-term interest rates, with long-term interest rates based on the expectations on future short-term interest rates. The final section of the chapter deals with the restrictions placed on the expansion of any single firm by the finance capital market.