Thursday, March 31, 2011

Brouhaha Over Krugman On Endogenous Money

I recently posted about the theory that the money supply is endogenous and under the control of a country's central bank, such as the Federal Reserve. Paul Krugman dismisses the theory.

Proponents of Modern Monetary Theory, in the comments and elsewhere, have taken issue with Krugman. I have in mind, for example, Dean Baker, Peter Cooper, Scott Fullwiler, Greg Hannsgen (of the Levy Institute), Bill Mitchell, Warren Mosler, Cullen Roche, and Pavlina Tcherneva (cross-posted). James Galbraith appears in various comments, for example, in this one, in which he says, "I was a student of Godley (and even more so, of Kaldor) many years ago and a close observer of monetary policy during my years on Capitol Hill, so this material came easily to me."


Hannes said...

Being myself not really a monetary economist but interested in the matter, I would have liked to understand that whole endogenous money thing and so I read billyblog for a while. I stopped when I had the impression that he only repeated arrogant rhetorics and sermon without really trying to explain the basics.

Anonymous said...

Steve Keen in Debunking Economics has a good discussion on it (and mentions evidence to support it). Doug Henwood also has a good introduction to it in his excellent Wall Street. That is available on-line here:

That is a good book.

I would also recommend Nicholas Kaldor, particularly his articles refuting Friedman's Monetarism. Given that Thatcher's government could NOT control the money supply (and helped destroy the economy in the process of failing) that is one for Kaldor and the endogenous theory of money.

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Robert Vienneau said...

I think I have an introductory understanding, at best, of some of these issues. I think Iain's references don't get at the elements of chartalism currently entangled with the idea of an endogenous money supply. L. Randall Wray's Understanding Modern Money is among the references I think I might sometime read.

Quite a while ago, I read and enjoyed Henwood's Wall Street, Basil Moore's Horizontalists and Verticalists, and a 1994 survey paper, "Post-Keynesian monetary economics", by Allin Cottrell. Cottrell provides an expansion of the Kaldor references that Iain gives.