Is There Room for Bulls, Bears, and States in the Circuit?
AbstractThis paper takes off from Jan Kregel's paper "Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?" (1986), which aimed to remedy shortcomings in most expositions of the "circuit approach." While some "circuitistes" have rejected John Maynard Keynes's liquidity preference theory, Kregel argued that such rejection leaves the relation between money and capital asset prices, and thus investment theory, hanging. This paper extends Kregel's analysis to an examination of the role that banks play in the circuit, and argues that banks should be modeled as active rather than passive players. This also requires an extension of the circuit theory of money, along the lines of the credit and state money approaches of modern Chartalists who follow A. Mitchell Innes. Further, we need to take Charles Goodhart's argument about default seriously: agents in the circuit are heterogeneous credit risks. The paper concludes with links to the work of French circuitist Alain Parguez.
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Bibliographic InfoPaper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_700.
Date of creation: Dec 2011
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Circuit Approach; Liquidity Preference; Banks as Ephor of Capitalism; J. M. Keynes; J. A. Schumpeter; A. Parguez; J. A. Kregel; Chartalist; Modern Money Theory; State Money; Credit Money; Default;
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-HME-2012-01-03 (Heterodox Microeconomics)
- NEP-HPE-2012-01-03 (History & Philosophy of Economics)
- NEP-PKE-2012-01-03 (Post Keynesian Economics)
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- Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
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