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The role of credit in a Keynesian monetary economy

  • Bertocco Giancarlo

    ()

    (Department of Economics, University of Insubria, Italy)

The aim of this paper is to describe the features of a monetary economy on the basis of Keynes's distinction between a real exchange economy and a monetary economy.As is well known, Keynes uses the former term to refer to an economy in which money is merely a tool to reduce the cost of exchanges and whose presence does not alter the structure of the economic system, which remains substantially a barter economy. Monetary economy instead refers to an economic system in which the presence of fiat money radically changes the nature of the exchanges and the characteristics of the production process. Keynes notes that the classical economists formulated an explanation of how the real-exchange economy works, convinced that this explanation could be easily applied to a monetary economy. He believed that this conviction was unfounded and stressed the need to elaborate a "...monetary theory of production, to supplement the real-exchange theories which we already possess." the General Theory constitutes the principal result of Keynes's work. In the General Theory, the reasons for the non-neutrality of money are indentified by highlighting the store of wealth function of money, and this approach has been adopted by most Keynesian economists. The aim of this paper is to show that such an approach only partially explains the reasons for money non-neutrality and that important elements which demonstrate the relevance of the monetary variables emerge when the means of payment function of money is highlighted. Emphasizing the significance of this function means acknowledging that, in a monetary economy, the availability of money is the necessary condition to carry out a spending decision, and therefore to recognise the need to explicitly deal with the issue of the financing of spending decisions significantly influences the evel and composition of income.(...).

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Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0222.

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Length: 36 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:ins:quaeco:qf0222
Contact details of provider: Postal: Via Ravasi 2-21100 Varese
Web page: http://www.uninsubria.it/uninsubria/facolta/econo.html

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