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Endogenous currency and banking passivity: a critical analysis of the “horizontalist” approach and the “monetary circuit theory"

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  • Maria Cristina Penido de Freitas

Abstract

The purpose of this article is to present a critical analysis of Post-Keynesian approachs that support the thesis of an extreme endogeneity of money creation. Neither horizontalists nor monetary circuit theorists give special attention to the dual and dialectic aspects of banks, profit oriented institutions which are responsible for money creation and for financial intermediation. Because of these aspects, banking competition is the core of financial instability and credit dynamics. Having as their main goal competition for profits, banks act procyclically helping to amplify the instability of the capitalist economy, and to stimulate financial speculation activities instead of industrial investments, which is the source of wealth and material reproduction in capitalist economies. JEL Classification: E44; E51; G21; E12.

Suggested Citation

  • Maria Cristina Penido de Freitas, 1999. "Endogenous currency and banking passivity: a critical analysis of the “horizontalist” approach and the “monetary circuit theory"," Brazilian Journal of Political Economy, Center of Political Economy, vol. 19(4), pages 685-704.
    • Handle: RePEc:ekm:repojs:v:19:y:1999:i:4:p:685-704:id:1077
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    Keywords

    Post-Keynesianism; monetary economics; banks; monetary emission; bank competition;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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