The Endogenous Money Approach
5 Pages Posted: 28 Jan 2014
Date Written: August 1, 2001
In neoclassical theory, money is an exogenous variable: Money is neutral, merely determining nominal prices; and the supply of money is controlled by the central bank.
This paper delineates how Post Keynesians offer a clear alternative to the neoclassical approach. Topics discussed include: early Post Keynesian work, which emphasized uncertainty and money hoarding; circuit theory, which focused on money's role in financing spending; horizontalism, which pointed out the inability of the central bank to control reserves; endogenous money; neo-Chartalism, which looks at the role of the state in designating a unit of account for taxes and other monetary obligations; functional finance, which refuses to separate fiscal and monetary policy; the failure of monetary policy to affect unemployment; and the use of fiscal policy, via a government "buffer stock" of labor, to reduce unemployment.
Keywords: endogenous money, circuit theory, horizontalism, neo-Chartalism, functional finance, unemployment, buffer stock of labor
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