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The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson


  • Lavoie, Marc


The purpose of this note is to reconsider the puzzle arising from a theory of endogenous credit-money: if the supply of bank credit is the source of bank deposits, what would occur when the supply of bank deposits exceeds the demand for deposits? It has recently been argued that changes in interest rate differentials would be the primary mechanism through which such an inequality could be reduced back to equality. The argument here is that such a mechanism is a secondary one, akin to Kaldor's reflux principle, which is itself the primary mechanism, when properly generalized to increases in advances generated by the private, the public, and the external sectors, and when reflux is extended to all agents, including households and banks. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 103-113, January.
  • Handle: RePEc:oup:cambje:v:23:y:1999:i:1:p:103-13

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    References listed on IDEAS

    1. Erdem, Esra & Glyn, Andrew, 2001. " Job Deficits in UK Regions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(0), pages 737-752, Special I.
    2. Robert Rowthorn, 2005. "Combined and Uneven Development: Reflections on the North-South Divide," Working Papers wp305, Centre for Business Research, University of Cambridge.
    3. Singh, Ajit, 1977. "UK Industry and the World Economy: A Case of De-industrialisation?," Cambridge Journal of Economics, Oxford University Press, vol. 1(2), pages 113-136, June.
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    Cited by:

    1. Jo Michell, 2016. "Do shadow banks create money? 'Financialisation' and the monetary circuit," Working Papers PKWP1605, Post Keynesian Economics Study Group (PKSG).
    2. repec:eme:jfeppp:jfep-05-2016-0033 is not listed on IDEAS
    3. Alexey Ponomarenko, 2017. "A note on money creation in emerging market economies," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 9(1), pages 70-85, April.
    4. Marc Lavoie, 2001. "Endogenous Money in a Coherent Stock-Flow Framework," Economics Working Paper Archive wp_325, Levy Economics Institute.
    5. Giuseppe Fontana & Alfonso Palacio-Vera, 2002. "Monetary Policy Rules: What Are We Learning?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 24(4), pages 547-568, July.
    6. Eckhard Hein, 2006. "Money, interest and capital accumulationin Karl Marx's economics: a monetary interpretation and some similaritiesto post-Keynesian approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(1), pages 113-140.
    7. Claude Gnos & Louis-Philippe Rochon, 2003. "Joan Robinson and Keynes: finance, relative prices and the monetary circuit," Review of Political Economy, Taylor & Francis Journals, vol. 15(4), pages 483-491.
    8. Jamee K. Moudud, 2010. "Strategic Competition, Dynamics, and the Role of the State," Books, Edward Elgar Publishing, number 4241.
    9. Hein, Eckhard, 2010. "The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth," MPRA Paper 23372, University Library of Munich, Germany.
    10. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics 0004049, EconWPA.
    11. Eckhard Hein, 2007. "Interest Rate, Debt, Distribution And Capital Accumulation In A Post-Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 310-339, May.
    12. Bossone, Biagio, 2001. "Circuit theory of banking and finance," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 857-890, May.
    13. Hein, Eckhard, 2004. "Money, credit and the interest rate in Marx's economic. On the similarities of Marx's monetary analysis to Post-Keynesian economics," MPRA Paper 18608, University Library of Munich, Germany.
    14. Giancarlo Bertocco, 2005. "The Role of credit in a Keynesian monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 17(4), pages 489-511.
    15. Gechert, Sebastian, 2012. "The multiplier principle, credit-money and time," MPRA Paper 34648, University Library of Munich, Germany.
    16. Enzo Dia, 2004. "Imperfect Information and Monopolistic Pricing in the Banking Industry," Working Papers 74, University of Milano-Bicocca, Department of Economics, revised May 2004.
    17. Angel Asensio, 2015. "Endogenous interest rate with accommodative money supply and liquidity preference," CEPN Working Papers halshs-01231469, HAL.
    18. repec:bla:metroe:v:68:y:2017:i:2:p:354-377 is not listed on IDEAS
    19. Louis-Philippe Rochon & Sergio Rossi, 2013. "Endogenous money: the evolutionary versus revolutionary views," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 210-229, January.
    20. Massimo Cingolani, 2008. "Full Employment as a Possible Objective for EU Policy I. A Perspective From the Point of View of The Monetary Circuit," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(1), pages 89-114, March.
    21. repec:hal:wpaper:halshs-01231469 is not listed on IDEAS
    22. Eckhard Hein, 2006. "Interest, Debt and Capital Accumulation—A Kaleckian Approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(3), pages 337-352.
    23. Jan Korda, 2011. "Monetární nerovnováha v teorii endogenních peněz
      [Monetary Disequilibrium in the Theory of Endogenous Money]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(5), pages 680-705.

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