Sentences to ponder

Data on “divisia money” (a well-known way of aggregating the components of broad money), computed by the Center for Financial Stability in New York, show that broad money (M4) was 17 per cent below its 1967-2008 trend in December 2012.

That is from Martin Wolf.  Wolf’s piece also raises the question of whether the Basil Moore/post Keynesian view of endogenous money is essentially correct in a world of IOR, but that is a topic for another day…


Site is timing out...but isn't this data just a coincident indicator? If in fact nominal GDP is 17% below the 1967-2008 trend line, then M4 or whatever will also be 17% below trend line. Says nothing (though M. Friedman might disagree). . Paper linked to appeared in J. of Macroecon. last year. There is more going on here than the truism that when central banks target interest rates, money is endogenous, which is conventionally true even beyond the arguments of Basil Moore.

Total quantity of sovereign liabilities, interest rate on *bonds*, interest rate on *money*, and the money/bonds mix are four plausible degrees of independence. Macroeconomic savings/investment and price balance is the objective.

If you give up neo-classical microeconomics, you can claim to have 3 of the 4 degrees at your disposal. The 4th is then endogenous. When the chosen levers are the two interest rates and the total qty of liabilities outstanding, the money/bonds mix is endogenous. This is the Post-Keynesian endogenous money position.

If you retain neo-classical micro, you can only claim 2 of the 4 degrees of freedom at your disposal. When the two chosen levers are interest rate on money and the total qty of liabilities outstanding, the rate on bonds as well as the money/bonds mix is endogenous. This is normal New Keynesian central banking. Sometimes, attempts are made to control the rate on bonds and the total qty as well as the mix of sovereign liabilities becomes endogenous. This is extra-normal New Keynesian central banking.

If you retain neo-classical micro, but give up the notion of savings/investment as the fundamental objective of macroeconomic balance, but make the *right* qty of money itself the definition of macroeconomic balance, you get back a 3rd lever of freedom. Then, the rate on money, total sovereign liabilities as well the money/bonds mix is under CB control. Only the rate on bonds is endogenous. This is the market monetarist/ monetary disequilibrium position.

Nick Rowe and his commentators have solved this stuff.

More debates will mostly be futile. We should just formalize this and move on. Perhaps I will take the lead.

The sad reality is there is no lever of freedom, its all endogenous.
Also, I <3 Nick Rowe's blog.

IMO: Post Keynesians are right about money being endogenous. Austrians are right about what causes monetary bubbles (that lead to recessions).

Wolf is right. We have to expand our view on 'money' and start to look beyond money created by banks, despite their present near monopoly on near legal tender creation

The Basil Moore/ post Keynesian view of endogenous money is essentially correct in an inflation targeting, fiat currency monetary regime whether or not the IOR rate is being used as a permanent floor. The permanent floor simply allows the CB to separately target both interest rates and the monetary base ( In either case loans create deposits and the CB promises to infinitely create demanded reserves in order to uphold a functioning payments system.

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