Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process
AbstractCurrent macro-economic textbooks provide a fatally misleading description of the money supply process in modern economies. Over the past 20 years Post Keynesian authors have established conclusively that despite strictly-enforced cash reserve requirements, changes in the supply of bank deposits are not determined exogenously by central bank open market operations, but are endogenously determined by changes in bank borrowers’ demand for credit. Nevertheless the vast majority of undergraduate macroeconomic textbooks continue to teach the high-powered-base “money-multiplier” paradigm that the supply of money is exogenously determined by the central bank. Few texts recognize that interest rate targeting renders the high-powered base endogenous. This paper summarizes the extent mainstream macroeconomic textbooks are “locked in” and “sticky,” and fail both in the teaching of monetary policy and in proper scientific discourse.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14845.
Date of creation: Nov 2008
Date of revision: Apr 2009
macroeconomic textbooks; money supply; endogenous money paradigm; EMP; Post Keynesian economics; paradigm shift;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
- I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
- B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-02 (All new papers)
- NEP-HIS-2009-05-02 (Business, Economic & Financial History)
- NEP-MAC-2009-05-02 (Macroeconomics)
- NEP-MON-2009-05-02 (Monetary Economics)
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