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Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems

Author

Listed:
  • Bill Gibson

    (University of Vermont)

  • Mark Setterfield

    (Department of Economics, New School for Social Research)

Abstract

Keynesian economists refer to capitalism as a monetary production economy, in which the theory of money and the theory of production are inseparable (Skidelsky, 1992). One important aspect of this, brought to light by Robertson following the publication of The General Theory, is that in a Keynesian economy, endogenous money creation is logically necessary if the economy is to expand. A Keynesian economy cannot operate with an exogenously given supply of money as in verticalism. One way to ensure that money is endogenous is to simply assume that the supply of money is infinitely elastic, known in the literature as horizontalism. In this view, prior savings cannot be a constraint on current investment and it follows that the level of economic activity is determined by effective demand. Using a multi-agent systems model, this paper shows that real economies, especially those subject to recurrent financial crises, can be neither horizontalist nor verticalist. Horizontalism overlooks microeconomic factors that might block flows from savers to investors, while verticalism ignores an irreducible ability of the system to generate endogenous money, even when the monetary authority does everything in its power to limit credit creation.

Suggested Citation

  • Bill Gibson & Mark Setterfield, 2015. "Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems," Working Papers 1511, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1511
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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_112015.pdf
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    References listed on IDEAS

    as
    1. Robert Pollin, 1991. "Two Theories of Money Supply Endogeneity: Some Empirical Evidence," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(3), pages 366-396, March.
    2. Marc Lavoie, 2007. "Endogenous Money: Accommodationist," Chapters, in: Philip Arestis & Malcolm Sawyer (ed.), A Handbook of Alternative Monetary Economics, chapter 2, Edward Elgar Publishing.
    3. Sheila C. Dow, 2007. "Endogenous Money: Structuralist," Chapters, in: Philip Arestis & Malcolm Sawyer (ed.), A Handbook of Alternative Monetary Economics, chapter 3, Edward Elgar Publishing.
    4. Thomas I. Palley, 2013. "Horizontalists, verticalists, and structuralists: the theory of endogenous money reassessed," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(4), pages 406—424-4, OCT.
    5. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Corrado Di Guilmi, 2017. "The Agent†Based Approach To Post Keynesian Macro†Modeling," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1183-1203, December.

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    More about this item

    Keywords

    Multi-agent system; intermediation; endogenous money; Keynesian macroeconomics;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • C00 - Mathematical and Quantitative Methods - - General - - - General

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