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Against Savings: A Suggested Exposition of the Markets for Money and Credit

23 Pages Posted: 22 Aug 2017  

Cameron Harwick

George Mason University - Department of Economics

Date Written: August 17, 2017

Abstract

The demand for money and the demand for credit are two concepts with a long history of confusion. Their development over the past century, while making important advances, retains a good deal of conceptual baggage, especially in the textbook loanable funds construction and the notion of a stock of “savings” that intermediaries lend out to investors. Most importantly, it lends itself to a naïve conception of banking in which banks are "pure" intermediaries of savings into loanable funds, which suggests a Ricardian-type economy with a fixed money stock. This paper argues that the concept of saving can and should be jettisoned and replaced with more suitable existing terms, and offers an alternative “banking-first” exposition of the markets for money and credit in which the supply of loanable funds is an integral part of the supply of money, in order to clarify the relationship and to clearly distinguish between the two in a manner suitable for an introductory money and banking course.

Keywords: Macroeconomics, Saving, Banking, Loanable Funds, Pedagogy

JEL Classification: E21, E51, A22, B12, B22

Suggested Citation

Harwick, Cameron, Against Savings: A Suggested Exposition of the Markets for Money and Credit (August 17, 2017). Available at SSRN: https://ssrn.com/abstract=3021115

Cameron Harwick (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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