Printing Money -Reply

[Louis-Phillippe Rochon (Louis-Phillippe Rochon) <148756@xxxxxxxxxxxxx>]

Dear Jonathan,

Post-Keynesians and economists associated with the French Circulation
School would argue that in a monetary capitalist economy, money
essentially takes the form of credit.  In the dynamic circuit approach (see
Alain Parguez, Marc Lavoie, Augusto Graziani and Mario Seccareccia -
as well as many others), credit is first a decision of firms to enter into
debt (see also Randall Wray).  To carry out production of consumption
AND capital goods, firms need access to credit to cover wages and the
purchase of inputs.  There is a necessary time lag between the time
production begins and when firms can start receiving the revenues from
sales.  Credit will NOT come from savings but from commercial banks
(hence the importance post-Keynesians place on the independence of
investment from prior savings).  As credit is distributed essentially as
wages, money is created ex-nihilo by the needs of trade.

The point that post-Keynesians have yet failed to develop is the
repayment of past debt.  This is where I believe the Dynamic Circuit can
offer their greatest contribution on the on-going debate.  As revenues
are collected, firms pay back their intial debt.  These revenues come from
household consumption.  Of course, since part of the income is saved,
we can further divide these savings into two components: hoarded
savings and the purchase of securities.  When household purchase
securities, then firms gain back part of their initial outlays.  From the point
of view of firms therefore, there is no difference between consumption
and the purchase of securities (see in particular Graziani).  This is what
has been termed the theory of monetary reflux.

Finally, there is still lots to cover, although the internet may not be the
best place to do so.  If you are interested, there are some really good
books (so many that it is imposiible to list them all here.  However, I would
really recommend: Paul Davidson (Money and the Real World); Basil
Moore (Horizontalists vs Verticalists, 1988); Randall Wray (Money and
Credit in a Capitalist Economy), as well as Marc Lavoie's Foundations of
Post-Keynesian Economic Theory (chapter 4).  Finally, Edward Nell has
just finished editing a book called Money in Motion which is an attempt as
reconciling PK and the Dynamic Circuit approaches.  It will be out soon.

As for your specific question, money expands with GNP precisely
because money (or credit) is needed to carry out production.  It is
therefore no surprise to see a link between the two.  As for WHO
decides, PK have traditionally argued (although there is disagreement on
this point) that "money" is endogenous and the rate of interest is
exogenous.  This implies that the Central Bank has no direct control over
the supply of money (is there such a thing as a 'supply of money'.
Kaldor and others such as Di Ruzza have argued that there can never
be 'excess' supply of money), but can control the base rate of interest.

Hope this is useful

Salut!

Louis-Philippe Rochon
New School for Social Research