On Some Equilibrium and Disequilibrium Theories of Endogenous Money: A Structuralist View

Cavalieri, Duccio (2004): On Some Equilibrium and Disequilibrium Theories of Endogenous Money: A Structuralist View. Published in: History of Economic Ideas , Vol. 12, No. 3 (2004): pp. 49-81.

Abstract

This paper is intended to be a contribution to a historico-critical analysis of some recent theories of endogenous money supply. Not a systematic survey of the literature on the subject. It is mainly concerned with the internal consistency of the „circuit. theories developed in the 1980.s and early 1990.s and their later reappraisals and adjournments. It deals, inter alia, with some theoretical and practical problems concerning the monetary equilibrium framework of some of such theories, the endogenous or exogenous nature of the supply of money and of its single components, the relative importance of the different functions of money, the distinction between money and bank credit, the „closure. of a monetary circuit and the institutional role of a central bank as a lender of last resort. The author is a non-fundamentalist post-Keynesian monetary theorist. He regards money demand and supply as two strictly connected variables, whose structural interdependence precludes a causal approach to an analysis of the way money enters the circular income flow.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous money supply, circuit theories, monetary equilibrium and disequilibrium, credit money, fundamentalist Keynesism, structuralism
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General

References

LE BOURVA, J. (1962), Creation de la monnaie et multiplicateur du credit, ¡°Revue economique¡±, vol. 23, 29-56.

DAVIDSON, P. and WEINTRAUB, S. (1973), Money as Cause and Effect, ¡°Economic Journal¡±, vol. 84, December, 1117-32.

SCHMITT, B. (1975), Theorie unitaire de la monnaie, nationale et internationale, Castella, Albeuve (Switzerland) (An Italian translation, with an introduction by S. Figuera, has been published by Liguori Editore, Napoli, 1993).

PARGUEZ, A. (1975), Monnaie et macroeconomie: theorie de la monnaie en desequilibre, Economica, Paris.

GRIERSON, P. (1977), The Origins of Money, Athlone Press, London.

SCHMITT, B. (1978), Die Theorie des Kreditgeldes, Gustav Fischer, Stuttgart.

PARGUEZ, A. (1982), La monnaie dans le circuit, ou le voile dechire, ¡°Economie Appliquee¡±, vol. 35 (3), 231-65.

POULON, F. (1982), Theorie des economies d¡¯endettement et theorie du circuit face a la crise, ¡°Economie Appliquee¡±, vol. 35 (3).

LAVOIE, M. (1984), The Endogenous Credit Flow and the Post Keynesian Theory of Money, ¡°Journal of Economic Issues¡±, vol. 18 (3), 233-58.

MESSORI, M. (1985), Le circuit de la monnaie: acquis et problemes non resolus, in R. Arena e A. Graziani, eds., Production, circulation et monnaie, Presses Univ. de France, Paris, 207-46.

GIANNOLA, A. (1985), Some Notes on Income Distribution, Activity Levels and the Structure of Interest Rates in a Pure Credit Economy, ibidem.

TABELLINI, G. (1985), Accommodative Monetary Policy and Central Bank Reputation, ¡°Giornale degli economisti¡±, vol. 44 (7-8), 389-425.

COTTRELL, A. (1986), The Endogeneity of Money and Money-Income Causality, ¡°Scottish Journal of Political Economy¡±, vol. 33 (1), 2-27.

PARGUEZ, A. (1986), Au coeur du circuit, ou quelques reponses aux enigmes du circuit, ¡°Economies et societes¡±, Ismea, Serie Monnaie et Production, vol. 20, n. 3, 23-39.

LAVOIE, M. (1987), Monnaie et production. Une synthese de la theorie du circuit, ¡ì Economies et societes ¡í, Serie Monnaie et Production, vol. 21, n. 4, Ismea, Paris.

GRAZIANI, A. (1988), Il circuito monetario, in M. Messori e A. Graziani, eds., Moneta e produzione, Einaudi, Torino, XI-XLIII.

MESSORI, M. (1988), Agenti e mercati in uno schema periodale, ibidem, 285-330.

MOORE, B.J. (1988), Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge Univ. Press, Cambridge.

GRAZIANI, A. (1989), The Theory of the Monetary Circuit, ¡°Thames Papers in Political Economy¡±, London.

MOORE, B.J. (1989), The Endogeneity of Credit Money, ¡°Review of Political Economy¡±, vol. 1 (1), 65-93.

WRAY, L.R. (1990), Money and Credit in Capitalist Economies: The Endogenous Money Approach, Elgar, Aldershot.

POLLIN, R. (1991), Two Theories of Money Supply Endogeneity: Some Empirical Evidence, ¡°Journal of Post Keynesian Economics¡±, vol. 13 (3), 366-396.

PALLEY, T.I. (1991), The Endogenous Money Supply: Consensus and Disagreement, "Journal of Post Keynesian Economics". vol. 13, 397-403.

COTTRELL, A. (1994), Post Keynesian Monetary Economics: A Critical Survey, ¡°Cambridge Journal of Economics¡±, vol. 18, 587-605.

PALLEY, T.I. (1994), Competing Views of the Money Supply Process: Theory and Evidence, ¡°Metroeconomica¡±, vol. 45 (1), 67-88.

GRAZIANI, A. (1994), La teoria monetaria della produzione, Banca Popolare dell'Etruria e del Lazio, Arezzo (English trans. The Monetary Theory of Production, Cambridge Univ. Press, Cambridge, 2003).

CAVALIERI, D. (1994), La teoria monetaria della produzione di Keynes e i teorici del circuito: a proposito di un libro di Augusto Graziani, ¡°Studi Economici¡±, vol. 49 (54), 133-52.

GRAZIANI, A. (1995a), A proposito di un articolo di Duccio Cavalieri, ¡°Studi Economici¡±, vol. 50 (55), 181-97.

GRAZIANI, A. (1995b), The Theory of the Monetary Circuit, in M. Musella and C. Panico (eds.), The Money Supply in the Economic Process: A Post Keynesian Perspective, Elgar, Aldershot, 516-41.

CAVALIERI, D. (1996), Sullo statuto teorico dell'offerta di moneta: un dibattito con Augusto Graziani, "Studi Economici", vol. 51 (59), 99-126.

GRAZIANI, A. (1996), Seconda replica al Prof. Cavalieri, "Studi Economici", ibidem, 127-38.

DOW, S.C. (1996), Horizontalism: a critique, ¡°Cambridge Journal of Economics¡±, vol. 20, 497-508.

PALLEY, T.I. (1996), Accommodationism versus Structuralism: Time for an Accommodation, ¡°Journal of Post Keynesian Economics¡±, vol. 18, 585-94.

DELEPLACE, G. and NELL, E.J. (1996), Introduction: Monetary Circulation and Effective Demand, in Idem (eds.), Money in Motion: the Post Keynesian and Circulation Approaches, Macmillan, London, 1-41.

PARGUEZ, A. (1996), Beyond Scarcity: A Reappraisal of the Theory of the Monetary Circuit, ibidem, 155-99.

LAVOIE, M. (1996), Monetary Policy in an Economy With Endogenous Credit Money, ibidem, 532-45.

ARESTIS, P. and HOWELL, P. (1996), Theoretical Reflection on Endogenous Money: The Problem With Convenience Lending, ¡°Cambridge Journal of Economics¡±, vol. 20, 539-51.

REALFONZO, R. (1998), Money and Banking: Theory and Debate (1900-1940), Elgar, Cheltenham.

WRAY, L.R. (1998), Money and Taxes: The Chartalist Approach, Jerome Levy Economics Institute, Bard College, New York, Working Paper 222.

GODLEY, W. (1999), Money and Credit in a Keynesian Model of Income Determination, ¡°Cambridge Journal of Economics¡±, vol. 25 (2), 393-411.

TAYLOR, J.B. (1999), Introduction to Monetary Policy Rules, in Idem (ed.), Monetary Policy Rules, Univ. of Chicago Press, Chicago.

FONTANA, G. (1999), Rethinking Endogenous Money: A Constructive Interpretation of the Debate between Accommodationists and Structuralists, Business School, Univ. of Leeds, Working paper, September (revised version, March 2001).

CLARIDA, R., GALI, J. and GERTLER, M. (1999), The Science of Monetary Policy: A New Keynesian Perspective, ¡°Journal of Economic Literature¡±, vol. 37 (4), 1661-1707.

REALFONZO, R. (1999), French Circuit School, in P.A. O.Hara, ed., Encyclopedia of Political Economy, Routledge, London, vol. I, 375-78.

BELLOFIORE, R. and SECCARECCIA, M. (1999), Monetary Circuit, ibidem, 753-56.

ROCHON, L.P. (1999), The Creation and Circulation of Endogenous Money: A Circuit Dynamic Approach, ¡°Journal of Economic Issues¡±, vol. 33 (1), 1-22.

CAVALIERI, D. (1999), Il circuito della moneta e il finanziamento dell¡¯economia. Un¡¯analisi teorica, ¡°Studi e note di economia¡± (3), 45-84.

FIGUERA, S. (2000), Il carattere monetario dell¡¯economia capitalistica alla luce di un recente dibattito, ¡°Studi Economici¡±, vol. 55 (70), 129-54.

FONTANA, G. (2000), Post Keynesians and Circuitists on Money and Uncertainty: An Attempt at Generality, ¡°Journal of Post Keynesian Economics¡±, vol. 23 (1), 27-48.

PARGUEZ, A. and SECCARECCIA, M. (2000), A Credit Theory of Money: The Monetary Circuit Approach, in J. Smithin (ed.), What is Money?, Routledge, London, 101-23.

BELLOFIORE, R., FORGES DAVANZATI, G. and REALFONZO, R. (2000), Marx Inside the Circuit. Discipline Device, Wage Bargaining and Unemployment in a Sequential Monetary Economy, ¡°Review of Political Economy¡±, vol. 12 (4), 403-17.

MEYER. L.H. (2001), Does Money Matter?, ¡°Federal Reserve Bank of St. Louis Review¡±, vol. 83 (5), 1-15.

PARGUEZ, A. (2001), Money Without Scarcity: From Horizontalist Revolution to the Theory of the Monetary Circuit, in L.P. Rochon and M. Vernengo (eds.), Credit, Interest Rates and the Open Economy: Essays in Horizontalism, Elgar, Cheltenham, 69-103.

PIVETTI, M. (2001), Money Endogeneity and Monetary Non-Neutrality: A Sraffian Perspective, ibidem, 104-19.

BOSSONE, B. (2001), Circuit Theory of Banking and Finance, ¡°Journal of Banking and Finance¡±, vol. 25 (5), 857-90.

BELL, S. (2001), The Role of the State and the Hierarchy of Money, ¡°Cambridge Journal of Economics¡±, vol. 25, 149-63.

LAIDLER, D. (2001), The Transmission Mechanism With Endogenous Money, in P. Arestis, M. Desai and S.C. Dow (eds.), Money, Macroeconomics and Keynes: Essays in Honour of Victoria Chick, Routledge, London, vol. 1, 25-34.

HALEVI, J. and TAOUIL, R. (2001), On a Post-Keynesian Stream from France and Italy: The Circuit Approach, ibidem, 91-102.

MESSORI, M. (2003), Credit and Money in Schumpeter's Theory, in R.Arena and N. Salvadori (eds.), Money Credit and the Role of the State, Ashgate, Aldershot, 173-200.

ZAZZARO, A. (2003), How Heterodox Is the Heterodoxy of Monetary Circuit Theory? The Nature of Money and the Microeconomics of the Circuit, in L.P. Rochon and S. Rossi, eds., Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Elgar, Cheltenham, 219-45.

LAVOIE, M. (2003), A Primer on Endogenous Credit Money, ibidem, 506-43.

PIEGAY, P. (2003), Post Keynesian Controversies on Endogenous Money: An Alternative Interpretation, ibidem, 246-62.

REALFONZO, R. (2003), Circuit Theory, in J.E. King (ed.), Elgar Companion to Post Keynesian Economics, Elgar, Cheltenham, 339-59.

MESSORI, M. and ZAZZARO, A. (2003), The Analysis of the Single Period: Financial Markets, Firms¡¯ Failures and the Closure of the Monetary Circuit, Benevento Conference on the Monetary Theory of Production (in Honour of Augusto Graziani), Benevento, December 5-6, 2003, mimeo.

CAVALIERI, D. (2003), On the Closure of the Monetary Circuit, Discussion of M. Messori and A. Zazzaro.s paper, ibidem, mimeo.

LE HERON, E. (2003), A New Consensus on Monetary Policy, ¡°Revista de Economia Politica¡±, vol. 23 (4).

ROSSI, S. (2003), Money and Banking in a Monetary Theory of Production, in L.P. Rochon and S. Rossi (eds.), Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Elgar, Cheltenham, 339-59.

FONTANA, G. (2003), Post Keynesian Approaches to Endogenous Money: a Time Framework Explanation, ¡°Review of Political Economy¡±, vol. 15 (3), 291-314.

ARESTIS, P. and SAWYER, M. (2003a), ¡°New Consensus¡±, New Keynesianism, and the Economics of the ¡°Third Way¡±, Jerome Levy Economics Institute, Bard College, New York, Working Paper 364.

ARESTIS, P. and SAWYER, M. (2003b), The Nature and Role of Monetary Policy When Money Is Endogenous, Jerome Levy Economics Institute, Bard College, New York, Working Paper 374.

ROCHON, L.P. and VERNENGO, M. (2003), State Money and the Real World: Or Chartalism and Its Discontents, ¡°Journal of Post Keynesian Economics¡±, vol. 26 (1), 57-67.

FONTANA, G e PALACIO-VERA, A. (2004), Is There an Active Role for Monetary Policy in the Endogenous Money Approach?, ¡°Journal of Economic Issues¡±, vol. 37 (2), 511-17.

WRAY, L.R. (2003), The Neo-Chartalist Approach to Money, in S.A. Bell and E.J. Nell (eds.), The State, the Market and the Euro: Chartalism versus Metallism in the Theory of Money, Elgar, Chaltenham, 89-110.

ZEZZA, G (2004), Some Simple, Consistent Models of the Monetary Circuit, Working Paper, mimeo.

ARESTIS, P. and SAWYER, M. (2004), New Consensus Monetary Policy: A Critique, Conference on ¡° .New. Monetary Policy: Implications and Relevance ¡±, Downing College, Cambridge, 18-20 March 2004, mimeo.

FONTANA, G. and REALFONZO, R. (eds., 2004), The Monetary Theory of Production: Tradition and Perspectives. Essays in Honour of Augusto Graziani, Macmillan, London.

ROCHON, L.P. and ROSSI, S. (2004), Central Banking in the Monetary Circuit, in M. Lavoie and M. Seccareccia (eds.), Central Banking in the Modern World: Alternative Perspectives, Elgar, Cheltenham, 144-63.

TRIGG, A.B. (2004), Marx and the Theory of the Monetary Circuit, ¡°Research in Political Economy¡±, vol. 21, 143-60.

JEL Classification: B 22, E 12, E 40, E 51. Keywords: endogenous money supply, circuit theories, monetary equilibrium and disequilibrium, credit money, fundamentalist Keynesism, structuralism