A Reading on Money and Money Creation

Kevin Furey

Forum for Social Economics, 2013, vol. 42, issue 1, 38-58

Abstract: A difficulty in teaching undergraduate courses from a non-orthodox perspective is the lack of written material to draw upon. This reading, written for an introductory macroeconomics course, is an attempt to fill a small part of that void by providing a discussion of money creation from an endogenous money perspective. By focusing on the ability of banks to engage in asset and liability management, the reading makes it easy for students to comprehend why investment is never constrained by a lack of saving. For those who are compelled to also present the orthodox perspective, the question is which view to discuss first. Based on readings in cognitive science, unveiling the non-orthodox material first will greatly increase the chances students will analyze social problems from a non-orthodox perspective. Consequently, this reading is designed to be the student's first encounter with the subject of money and money creation. Orthodox textbooks usually omit from their balance sheets the two items that allow banks to make loans without excess reserves. By presenting the non-orthodox view first, students easily see the problems with the orthodox money multiplier approach.

Date: 2013
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DOI: 10.1080/07360932.2013.770775

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