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The role of credit in a Keynesian monetary economy

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  • Bertocco Giancarlo

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

The aim of this paper is to describe the features of a monetary economy on the basis of Keynes's distinction between a real exchange economy and a monetary economy.As is well known, Keynes uses the former term to refer to an economy in which money is merely a tool to reduce the cost of exchanges and whose presence does not alter the structure of the economic system, which remains substantially a barter economy. Monetary economy instead refers to an economic system in which the presence of fiat money radically changes the nature of the exchanges and the characteristics of the production process. Keynes notes that the classical economists formulated an explanation of how the real-exchange economy works, convinced that this explanation could be easily applied to a monetary economy. He believed that this conviction was unfounded and stressed the need to elaborate a "...monetary theory of production, to supplement the real-exchange theories which we already possess." the General Theory constitutes the principal result of Keynes's work. In the General Theory, the reasons for the non-neutrality of money are indentified by highlighting the store of wealth function of money, and this approach has been adopted by most Keynesian economists. The aim of this paper is to show that such an approach only partially explains the reasons for money non-neutrality and that important elements which demonstrate the relevance of the monetary variables emerge when the means of payment function of money is highlighted. Emphasizing the significance of this function means acknowledging that, in a monetary economy, the availability of money is the necessary condition to carry out a spending decision, and therefore to recognise the need to explicitly deal with the issue of the financing of spending decisions significantly influences the evel and composition of income.(...).

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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0222.

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Length: 36 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:ins:quaeco:qf0222

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Citations

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Cited by:
  1. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS, University of London, UK.
  2. Giancarlo Bertocco, 2009. "The Relationship Between Saving and Credit from a Schumpeterian Perspective," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 43(3), pages 607-640, September.
  3. Jose A. Murillo & Sara G. Castellanos, 2004. "Inflation Dynamics’ Micro Foundations: How Important is Imperfect Competition Really?," Econometric Society 2004 Latin American Meetings 78, Econometric Society.
  4. Bertocco Giancarlo, 2003. "The economics of financing firms: the role of banks," Economics and Quantitative Methods qf0312, Department of Economics, University of Insubria.
  5. Bertocco Giancarlo, 2003. "The characteristics of a monetary economy: a Keynes-Schumpeter approach," Economics and Quantitative Methods qf0311, Department of Economics, University of Insubria.
  6. M. Lopreite, 2012. "The endogenous money hypothesis and securitization: the Euro area case (1999-2010)," Economics Department Working Papers 2012-EP02, Department of Economics, Parma University (Italy).
  7. Passarella, Marco, 2011. "From the village fair to Wall Street. The Italian reception of Minsky’s economic thought," MPRA Paper 49593, University Library of Munich, Germany.
  8. Nazim Kadri Ekinci, 2013. "Income distribution in a monetary economy," PSL Quarterly Review, Economia civile, vol. 66(267), pages 435-455.
  9. Bertocco Giancarlo, 2004. "Are banks really special? A note on the theory of financial intermediaries," Economics and Quantitative Methods qf04021, Department of Economics, University of Insubria.

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