Behavioral Finance Lecture 08: Modeling Endogenous Money

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Lecture 8: Introduction to dynamic modeling. (Slides: CfESI Subscribers  Part 1; Part 2; Debtwatch Subscribers Part 1 Part 2)

Explain­ing the “Mon­e­tary Cir­cuit The­o­ry” of cap­i­tal­ism. I show that the dilem­mas that hob­bled Cir­cuit The­o­ry for so long were sim­ple mis­takes in dynam­ic mod­el­ling, which reflect poor­ly not so much on Cir­cuit the­o­rists them­selves, but econ­o­mists in gen­er­al, since even non-ortho­dox econ­o­mists are locked into the sta­t­ic ways of think­ing they were taught by neo­clas­si­cal lec­tur­ers. This lec­ture gives a very brief intro­duc­tion to the basic ele­ments of dynam­ic modeling–differential equa­tions and sys­tems engineering–and begins explain­ing QED, the pro­to­type mon­e­tary dynam­ic mod­el­ing tool devel­oped by blog mem­ber Sir­ius.

I extend the mod­el devel­oped in the first half of the lec­ture to include pay­ment of wages and con­sump­tion. The result­ing mod­el “works” in that it is pos­si­ble for cap­i­tal­ists to bor­row mon­ey, pro­duce out­put, and make a prof­it. Just under 30 min­utes in to the lec­ture, I start devel­op­ing the mod­el using QED live. (QED Demo files–free down­load)