Money Creation: The Sources
19 Pages Posted: 15 Jul 2012
Date Written: July 13, 2012
Abstract
The endogenous-exogenous money debate is a futile one. Exogenous money creation, based on the money multiplier, is not a money creation process. Rather, it is a monetary policy model, but in it money is still created endogenously: bank loans (and foreign asset accumulation by banks) concurrently create new bank deposits (money). This simple fact is obscured by the powerful thesis of Friedmanian Monetarism, and the sharp antithesis of the Post-Keynesian School, as, therefore, is the simple balance sheet analysis of money creation (which disappeared from the literature). This article argues the above, and resurrects the straightforward balance sheet monetary analysis, as the only way to present the sources of money creation. It elucidates the balance sheet sources, as well as the underlying actual sources: the demand for loans (and their satisfaction), and bank decisions regarding foreign asset accumulation. It also covers money destruction.
Keywords: Money, endogenous money, exogenous money, central banking, banking, interest rates, monetary policy
JEL Classification: A22, E42, E51, E52, G21
Suggested Citation: Suggested Citation
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