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Reflections on the reconciliation problem

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Abstract

This paper deals with the so called problem of reconciliation, a contentious and puzzling issue in Post Keynesian monetary theory. The crux of the matter is the question of mechanisms that would reconcile the loan-created supply of deposits with the willingness of agents to hold these deposits. The paper reviews and comments on the solutions proposed so far and argues that the reconciliation problem might not be eliminated entirely. The argument is twofold. First, it is argued that the income multiplier and Kaldor-Trevithick reflux mechanism cannot do the trick. Second, certain factors affecting the mechanism based on changes in relative interest rate differentials are identified that might preclude the mechanism from working as envisaged by its proponents. If this is the case, what we are left with is the concept of convenience lending.

Suggested Citation

  • Ondøej Lopušník, 2011. "Reflections on the reconciliation problem," Working Papers IES 2011/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2011.
  • Handle: RePEc:fau:wpaper:wp2011_12
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    File URL: http://ies.fsv.cuni.cz/default/file/download/id/16317
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    Keywords

    convenience lending; endogenous money; Post Keynesian economics; reconciliation problem;

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • 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

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