I’ve done a demolition derby on Neoclassical economics in the previous 6 lectures; for the next 6, I’ll build a realistic alternative. First stop is the importance of the endogeneity of money in utterly revising macroeconomic analysis. In the first half of this lecture, I outline the basic propositions in endogenous money, and some of the disputes that have arisen in the very early days of this theory. By way of analogy, the state of endogenous money theory today would be a bit like the early days of the Copernican model of the solar system: the fundamental idea is correct, but many of the arguments that people make about it reflect confusion about a new concept.
I then conclude with an outline of the brilliant insights from the Circuitist School, and in particular from Augusto Graziani, into why a monetary economy is fundamentally different to the neoclassical fiction of a barter economy. (PPT Slides: Debtwatch Subscribers [Membership needed–non-members click here]; CfESI Subscribers [Membership needed–non-members click here])
Though Graziani’s fundamental insights were brilliant, when he attempted to develop a (verbal) model of this process, he made many errors which arose from confusing stocks with flows. I outline the accepted verbal model of the monetary circuit prior to my own research, and point out the flaws in this verbal argument as a prelude to developing my mathematical model of the Monetary Circuit in the next lecture. (PPT Slides: Debtwatch Subscribers; CfESI Subscribers)