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

Faure, Alexander Pierre, Money Creation: The Sources (July 13, 2012). Available at SSRN: https://ssrn.com/abstract=2105629 or http://dx.doi.org/10.2139/ssrn.2105629

Alexander Pierre Faure (Contact Author)

Rhodes University ( email )

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