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On the nature and role of financial systems in Keynes’s entrepreneurial economies

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  • Fernando J. Cardim de Carvalho

Abstract

In his debate with Bertil Ohlin, Keynes observed that entrepreneurs, when deciding to invest, have to be sure they will access the amount of finance necessary to initiate the investment process and that they will be able, when the time comes, to fund their debts in ways that are adequate to the profile of assets they are purchasing. In this statement, Keynes outlines the functions of financial systems in Entrepreneurial Economies, the type of economies he hypothesizes we live in. In entrepreneurial economies, investing firms have to be able to get hold of the necessary amount of means of payment required to purchase or order investment goods and to build balance sheets where in- and outflows of cash are broadly matched within reasonable margins of safety. This means that financial systems’ primary role in Keynesian economics is not to allocate savings or capital but to allocate liquidity and to allow investors to build liquid balance sheets. The article develops this proposition, presenting Keynes's basic concepts on the matter and showing how modern financial systems perform their role.

Suggested Citation

  • Fernando J. Cardim de Carvalho, 2016. "On the nature and role of financial systems in Keynes’s entrepreneurial economies," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(3), pages 287-307, July.
    • Handle: RePEc:mes:postke:v:39:y:2016:i:3:p:287-307
    DOI: 10.1080/01603477.2016.1190282
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    References listed on IDEAS

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    1. Fernando J. Cardim de Carvalho, 1992. "Mr Keynes And The Post Keynesians," Books, Edward Elgar Publishing, number 79, June.
    2. Paul Davidson, 2002. "Financial Markets, Money and the Real World," Books, Edward Elgar Publishing, number 2467, June.
    3. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    4. Peter Boone & C Goodhart & Andrew Haldane & Simon Johnson & John Kay & Andrew Large & Richard Layard & Andrew Smithers & A Turner & S Wadhwani & Martin Wolf & Paul Woolley, 2010. "In brief: The future of finance," CentrePiece - The magazine for economic performance 327, Centre for Economic Performance, LSE.
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