The document discusses two views of money - exogenous and endogenous. Under the exogenous view, money is a commodity like gold that functions as a neutral medium of exchange. Money enters the economy externally. Under the endogenous view, money is created through the process of banks making loans to finance economic activity, so money is created from within the economy and is not neutral. The document also discusses how these different views lead to different understandings of monetary and fiscal policy, and how endogenous money and stock-flow accounting provide a better framework for formulating good macroeconomic policies.
MODERN MONEY: The way a sovereign currency “works”DevinDSmith
Presentation by L. Randall Wray at the conference: Central Banks, Financial Systems, and Economic Development, Banco Central de la Republica Argentina in Buenos Aires, Argentina on 10/2/2012
MODERN MONEY: The way a sovereign currency “works”DevinDSmith
Presentation by L. Randall Wray at the conference: Central Banks, Financial Systems, and Economic Development, Banco Central de la Republica Argentina in Buenos Aires, Argentina on 10/2/2012
Economics theory fails to comprehend how 'money' is the consequence of trading connections creation of business processes. 'Money' is invoked by the need of society to account for the outputs in ledgers without fully accounting for the inputs. From that observation the Risk Price develops in the modal geometry of the business process that correlates the worth of credit floats created by trading connections into the worth applied to support the firm and consistently appears as a modal pattern in ledgers. That geometry is fundamental in all firms business process. The consequent need for 'money' to account for trading connections driving exchange through the business process creates the need to invoke 'money' as banking creates. Alice, meet the money multiplier that achieves the liquidity for 'money' to flow through society's business, leaving its imprint on ledgers everywhere as if a phantom.
Money: Definition, Origin, Functions, Inflation, Deflation, Value of Money, M...flowerpower_1324
These slides cover the first chapter of the B.Com "Banking and Finance" syllabus: Money.
It includes the following topics: Definition, Origin, Functions, Inflation and its remedies, , Deflation and its causes, reflation, devaluation, , Monetary and Fiscal Policy, Paper Money: its kinds and advantages and disadvanatges, Monetary system, Value of Money: quantity theory of money, cash balance approach, modern theory of money.
This is the ppt from a talk I gave recently to an audience of elderly folk. I hope it's clear what my message is: to have a stable monetary system, we need appropriate boundaries and regulation, neither which are delivered by a market approach. It's also true that governments do not need to borrow money for investment in productive infrastructure. Feedback always welcomed.
Economics theory fails to comprehend how 'money' is the consequence of trading connections creation of business processes. 'Money' is invoked by the need of society to account for the outputs in ledgers without fully accounting for the inputs. From that observation the Risk Price develops in the modal geometry of the business process that correlates the worth of credit floats created by trading connections into the worth applied to support the firm and consistently appears as a modal pattern in ledgers. That geometry is fundamental in all firms business process. The consequent need for 'money' to account for trading connections driving exchange through the business process creates the need to invoke 'money' as banking creates. Alice, meet the money multiplier that achieves the liquidity for 'money' to flow through society's business, leaving its imprint on ledgers everywhere as if a phantom.
Money: Definition, Origin, Functions, Inflation, Deflation, Value of Money, M...flowerpower_1324
These slides cover the first chapter of the B.Com "Banking and Finance" syllabus: Money.
It includes the following topics: Definition, Origin, Functions, Inflation and its remedies, , Deflation and its causes, reflation, devaluation, , Monetary and Fiscal Policy, Paper Money: its kinds and advantages and disadvanatges, Monetary system, Value of Money: quantity theory of money, cash balance approach, modern theory of money.
This is the ppt from a talk I gave recently to an audience of elderly folk. I hope it's clear what my message is: to have a stable monetary system, we need appropriate boundaries and regulation, neither which are delivered by a market approach. It's also true that governments do not need to borrow money for investment in productive infrastructure. Feedback always welcomed.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
Finance Economics revisited, a primer (abstract) - MaverlinnOlivier Coispeau
This is the abstract of a presentation delivered by Olivier Coispeau in September 2015. The presentation highlights conditions for renewed economic and financial analysis.
1. Two Views of Money
Implications for Fiscal & Monetary
Policy
2. Exogenous vs. Endogenous Money
• Recap:
– Orthodox (exogenous): Money is a commodity
(e.g. gold, silver). It functions as medium of
exchange. Agents not fooled by it; they respond
only to changes in relative values of real goods -
Money is neutral
– Money enters the economy from without –
imagine Fed Chairman Ben Bernanke flying around
in a little helicopter making it rain cash!
3. Exogenous vs. Endogenous Money
• Recap:
– Heterodox (endogenous): money is no object –
not a physical commodity w/ intrinsic value.
Money cannot be neutral – in a monetary
production economy (M – C – M’)
– Keynes: “The possession of actual money lulls our
disquietude; and the premium we require to make
us part with money is a measure of the degree of
our disquietude.” (GT, 1936)
4. Endogenous Money
• Money enters the economy as a result of the
need to finance real economic activity.
– M – C … P … C’ – M’
• Production takes place before sale, which must be
financed either internally or externally. For the
economy as a whole this must be external.
• Thus, loans are required to finance productive activity,
which are then retired once the business enterprise
realizes the increase in value through sales.
• Horizontal Money Creation: Loans -> Deposits
5. Endogenous Money
• Vertical Money Creation Process:
– Government spending: The state’s liabilities are the
money of account; high powered money; show up as
net financial assets
– Gov. Spending creates money; gov. taxation destroys
it.
– If G > T, then deficits accumulate to stocks of
outstanding G liabilities – i.e. the national debt.
– If G < T, then surpluses subtract from the stock of
outstanding G liabilities – i.e. paying down the
national debt.
– More on this later
7. Monetary Policy (Endogenous Story)
The CB cannot control
the money supply r
But, it can control the
interest rate (fed
funds rate).
Equation of Exchange: Ms
r*
MV = PQ
MD
Causality
MQ
8. Fiscal Policy
• In order to get fiscal policy right, we need to understand
how our monetary system works.
• Being wrong can have disastrous consequences on the
economy
– i.e. Volcker Recession of 1981
• Quantity targets failed which caused the interest to rate to rise to
really high levels.
• Erroneously believed the inflation is related to the quantity of money
in circulation
• Caused a recession – probably responsible for starting the decline of
American manufacturing (along with trade policy).
• Exogenous story leads to belief that G can run out of
money. Leads to fears of rising interest rates, unsustainable
debt levels, etc.
9. Endogenous Money & Stock-Flow
Accounting
• In order to formulate good macro policy, we
need to begin with good accounting:
• Flows accumulate to stocks
– Deficits are flows; debts are stocks
– Surpluses are flows; savings are stocks
• One’s financial asset is another’s financial
liability: An IOU (liability) generates a flow of
income to the holder of the IOU (asset)
10. Endogenous Money & Stock-Flow
Accounting
• There are three broad sectors to the economy:
Domestic Private Sector Balance + Domestic Government Balance + Foreign Balance = 0
Over any given period, each sector will either run a surplus, a deficit, or a balanced budget.
And they must sum to zero. This true by extension of the accounting principle that one’s
financial asset is another’s financial liability.