Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems

William Gibson and Mark Setterfield

No 1511, Working Papers from New School for Social Research, Department of Economics

Abstract: Keynesian economists refer to capitalism as a monetary production economy, in which the theory of money and the theory of production are inseparable (Skidelsky, 1992). One important aspect of this, brought to light by Robertson following the publication of The General Theory, is that in a Keynesian economy, endogenous money creation is logically necessary if the economy is to expand. A Keynesian economy cannot operate with an exogenously given supply of money as in verticalism. One way to ensure that money is endogenous is to simply assume that the supply of money is infinitely elastic, known in the literature as horizontalism. In this view, prior savings cannot be a constraint on current investment and it follows that the level of economic activity is determined by effective demand. Using a multi-agent systems model, this paper shows that real economies, especially those subject to recurrent financial crises, can be neither horizontalist nor verticalist. Horizontalism overlooks microeconomic factors that might block flows from savers to investors, while verticalism ignores an irreducible ability of the system to generate endogenous money, even when the monetary authority does everything in its power to limit credit creation.

Keywords: Multi-agent system; intermediation; endogenous money; Keynesian macroeconomics (search for similar items in EconPapers)
JEL-codes: C00 D58 E12 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2015-05
New Economics Papers: this item is included in nep-cba, nep-hme, nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_112015.pdf First version, 2015 (application/pdf)

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Journal Article: Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1511

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