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Is There Room for Bulls, Bears, and States in the Circuit?

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  • L. Randall Wray

Abstract

This paper takes off from Jan Kregel's paper "Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?" (1986), which aimed to remedy shortcomings in most expositions of the "circuit approach." While some "circuitistes" have rejected John Maynard Keynes's liquidity preference theory, Kregel argued that such rejection leaves the relation between money and capital asset prices, and thus investment theory, hanging. This paper extends Kregel's analysis to an examination of the role that banks play in the circuit, and argues that banks should be modeled as active rather than passive players. This also requires an extension of the circuit theory of money, along the lines of the credit and state money approaches of modern Chartalists who follow A. Mitchell Innes. Further, we need to take Charles Goodhart's argument about default seriously: agents in the circuit are heterogeneous credit risks. The paper concludes with links to the work of French circuitist Alain Parguez.

Suggested Citation

  • L. Randall Wray, 2011. "Is There Room for Bulls, Bears, and States in the Circuit?," Economics Working Paper Archive wp_700, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_700
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    References listed on IDEAS

    as
    1. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    2. Kregel, J A, 1976. "Economic Methodology in the Face of Uncertainty: The Modelling Methods of Keynes and the Post-Keynesians," Economic Journal, Royal Economic Society, vol. 86(342), pages 209-225, June.
    3. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474.
    4. repec:mes:jeciss:v:34:y:2000:i:3:p:603-620 is not listed on IDEAS
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    Keywords

    Circuit Approach; Liquidity Preference; Banks as Ephor of Capitalism; J. M. Keynes; J. A. Schumpeter; A. Parguez; J. A. Kregel; Chartalist; Modern Money Theory; State Money; Credit Money; Default;

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B24 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Socialist; Marxist; Scraffian
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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