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A comment on ‘Endogenous money and effective demand’: a revolution or a step backwards?

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  • Marc Lavoie

    (University of Ottawa, Canada)

Abstract

Steve Keen argues that post-Keynesians have not sufficiently emphasized the revolutionary character of endogenous money for macroeconomic theory, and that this should be done by recognizing that aggregate demand is equal to current or past income plus the change in debt. This equation, attributed in particular to Hyman Minsky, is discussed and questioned, and it is recalled that a similar equation had been proposed by Alfred Eichner. The consequences of bank credit for firms or households are further analysed within the context of the national accounts, and it is shown that one does not need a redefinition of aggregate demand and aggregate supply, in contrast to what is proposed by Keen.

Suggested Citation

  • Marc Lavoie, 2014. "A comment on ‘Endogenous money and effective demand’: a revolution or a step backwards?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(3), pages 321-332, July.
  • Handle: RePEc:elg:rokejn:v:2:y:2014:i:3:p321-332
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    References listed on IDEAS

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    1. Giancarlo Bertocco, 2013. "On Keynes's Criticism of the Loanable Funds Theory," Review of Political Economy, Taylor & Francis Journals, vol. 25(2), pages 309-326, April.
    2. Giovanni Bernardo & Emanuele Campiglio, 2014. "A simple model of income, aggregate demand and the process of credit creation by private banks," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(3), pages 381-405, August.
    3. Steve Keen, 2014. "Endogenous money and effective demand," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(3), pages 271-291, July.
    4. Robinson, Joan, 1970. "Quantity Theories Old and New," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 504-512, November.
    5. Jacques Le Bourva, 1962. "Création de la monnaie et multiplicateur du crédit," Revue Économique, Programme National Persée, vol. 13(1), pages 29-56.
    6. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    7. Fabian Lindner, 2015. "Does Saving Increase the Supply of Credit? A Critique of Loanable Funds Theory," World Economic Review, World Economics Association, vol. 2015(4), pages 1-1, February.
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    Cited by:

    1. repec:elg:rokejn:v:5:y:2017:i:4:p631-647 is not listed on IDEAS
    2. Jacob Assa, 2017. "Leveraged Growth: Endogenous Money and Speculative Credit in a Stock-flow Consistent Measure of Output," Working Papers 1727, New School for Social Research, Department of Economics.
    3. Antonin Pottier & Adrien Nguyen-Huu, 2017. "Debt and investment in the Keen model: a reappraisal of modelling Minsky," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(4), pages 631–647-6, October.

    More about this item

    Keywords

    bank credit; endogenous money; aggregate demand; time lags;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • 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

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