Abstract
A full-fledged theory of an endogenous money supply requires an outright rejection of the quantity theory of money in three clear-cut ways: (1) rejection of the notion that a capitalist economy naturally tends toward a long-run, full-employment equilibrium; (2) rejection of the argument that the income velocity of money is stable and independent of the rate of interest (or, in more contemporary terms, that the demand for money is a stable function of real income per capita); and, most important of all, (3) rejection of the quantity theory’s causal arrow running from the money supply to either nominal income or the general price level. These points were made in Chapter 4. Put in more positive terms, for purposes of this chapter, the theory of an endogenous money supply, in its most extreme form, argues: (1) that capitalism is inherently unstable; (2) that the underlying financial structure is given to waves of financial innovations in response to the conventional tight-money policies of the central bank; and (3) that any increase in nominal income causes an increase in the supply of money sufficient to accommodate the resulting increase in the demand for money.
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Notes
The model to be presented is based on Chapter 1, pages 28–30 of Sidney Weintraub’s Keynes, Keynesians, and Monetarists (Philadelphia: University of Pennsylvania Press, 1978).
For a discussion of the confusion surrounding this concept, see Peter J. Reynolds, “Kalecki’s Degree of Monopoly,” Journal of Post Keynesian Economics, Spring 1983.
See J. A. Kregel, “From Post-Keynes to Pre-Keynes,” Social Research, Summer 1979.
See also Hyman P. Minsky, Can “It” Happen Again? and Paul Davidson, “Why Money Matters,” Journal of Post Keynesian Economics, Fall 1978, and Money and the Real World.
a. Kaldor, The Scourge of Monetarism (London: Oxford University Press, 1982), p. 47, original italics.
See also, F. W. Paish, “Business Cycles in Britain,” Lloyds Bank Review, October 1970, pp. 11–12.
Sidney Weintraub, Capitalism’s Inflation and Unemployment Crisis (Reading, Mass.: Addison-Wesley, 1978), p. 193.
Anthony M. Solomon, “Financial Innovation and Monetary Policy,” December 28, 1981; reprinted by the Federal Reserve Bank of New York, 1982.
Hyman Minsky, “Central Banking and Money Market Changes,” Quarterly Journal of Economics, May 1957
reprinted in Can “It” Happen Again? (Armonk, N. Y.: M. E. Sharpe, Inc., 1982).
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© 1986 M. E. Sharpe, Inc.
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Rousseas, S. (1986). The Weintraub-Kaldor models of endogeneity. In: Post Keynesian Monetary Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-18229-9_5
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DOI: https://doi.org/10.1007/978-1-349-18229-9_5
Publisher Name: Palgrave Macmillan, London
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