Macroeconomics of Loanable Funds & Endogenous Money compared using Minsky

By Steve Keen – economics professor and Head of the School of Economics, History and Politics at Kingston University in London – Debt Deflation blog.

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The mainstream economic idea that banks are just intermediaries between savers and investors is a fantasy, but given that fantasy, their argument that the level and rate of change of private debt are not macroeconomically significant (except at the “Zero Lower Bound”) is correct. But in the real world, the role of the level and rate of change of private debt is crucial. I illustrate this by building a Minsky model of Loanable Funds and converting it to the real world of Endogenous Money. Then I explain how credit growth plays an essential role in aggregate demand and income, and how this is consistent with the truism that Expenditure equals Income.

Powerpoint Slides. Minsky files (right-click to save to your PC): Loanable Funds; Endogenous Money.

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