Payment vs. Funding: The Law of Reflux for Today

27 Pages Posted: 2 Apr 2020

See all articles by Perry Mehrling

Perry Mehrling

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: January 28, 2020

Abstract

The analytical tension in post-Keynesian thought between the theory of endogenous (credit) money and the theory of liquidity preference, brought to our attention by Dow and Dow (1989), can be viewed through the lens of the money view (Mehrling 2013) as a particular case of the balance between the elasticity of payment and the discipline of funding. Further, updating Fullarton’s 1844 “law of reflux” for the modern condition of financial globalization and market based credit, the same money view lens offers a critical entry point into Tobin’s fateful 1963 intervention “Commercial Banks as Creators of ‘Money’” which established post-war orthodoxy, and also to the challenge offered by so-called Modern Money Theory.

Keywords: credit creation, financial intermediation, law of reflux

JEL Classification: B2, E5

Suggested Citation

Mehrling, Perry, Payment vs. Funding: The Law of Reflux for Today (January 28, 2020). Institute for New Economic Thinking Working Paper Series No. 113, Available at SSRN: https://ssrn.com/abstract=3551453

Perry Mehrling (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

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New York, NY 10027
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