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Is There Room for Bulls, Bears, and States in the Circuit?

L. Randall Wray

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper takes off from Jan Kregel's paper "Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?" (1986), which aimed to remedy shortcomings in most expositions of the "circuit approach." While some "circuitistes" have rejected John Maynard Keynes's liquidity preference theory, Kregel argued that such rejection leaves the relation between money and capital asset prices, and thus investment theory, hanging. This paper extends Kregel's analysis to an examination of the role that banks play in the circuit, and argues that banks should be modeled as active rather than passive players. This also requires an extension of the circuit theory of money, along the lines of the credit and state money approaches of modern Chartalists who follow A. Mitchell Innes. Further, we need to take Charles Goodhart's argument about default seriously: agents in the circuit are heterogeneous credit risks. The paper concludes with links to the work of French circuitist Alain Parguez.

Keywords: Circuit Approach; Liquidity Preference; Banks as Ephor of Capitalism; J. M. Keynes; J. A. Schumpeter; A. Parguez; J. A. Kregel; Chartalist; Modern Money Theory; State Money; Credit Money; Default (search for similar items in EconPapers)
JEL-codes: B2 B24 B25 B31 B51 B52 E11 E12 E41 E43 E51 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-hme, nep-hpe and nep-pke
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Chapter: Is there room for bulls, bears and States in the circuit? (2013) Downloads
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