Macroeconomics of Loanable Funds & Endogenous Money compared using Minsky

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The main­stream eco­nom­ic idea that banks are just inter­me­di­aries between savers and investors is a fan­ta­sy, but giv­en that fan­ta­sy, their argu­ment that the lev­el and rate of change of pri­vate debt are not macro­eco­nom­i­cal­ly sig­nif­i­cant (except at the “Zero Low­er Bound”) is cor­rect. But in the real world, the role of the lev­el and rate of change of pri­vate debt is cru­cial. I illus­trate this by build­ing a Min­sky mod­el of Loan­able Funds and con­vert­ing it to the real world of Endoge­nous Mon­ey. Then I explain how cred­it growth plays an essen­tial role in aggre­gate demand and income, and how this is con­sis­tent with the tru­ism that Expen­di­ture equals Income.

Pow­er­point Slides. Min­sky files (right-click to save to your PC): Loan­able Funds; Endoge­nous Mon­ey.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.