Post-Keynesian Theories of Money and Credit: Conflicts and (Some) Resolutions

Abstract

Four approaches to money in the macroeconomy have appropriated the name of Keynes or the label “post-Keynesian”: liquidity preference, circuit theory, and the two forms of endogenous money, structuralism and accommodationism. Despite the common appeal to Keynes, there is little apparent common ground between these approaches. Horizontalists reject the very idea of the demand for money to hold, which is at the core of liquidity preference; circuitists reject uncertainty as the source of the existence of money, one of Keynes’s strongest assertions; structuralists reject an unconstrained supply of money, the core of the horizontalist approach. There is even disagreement about the definition of money. This chapter conducts a ground-clearing exercise in order to establish where we all agree: that bank loans create deposits. This exercise is followed by an argument that, contrary to the belief of some horizontalists, liquidity preference is not incompatible with loan-to-deposit causality. The chapter then rehearses the different concepts of money held by circuitists and liquidity preference theorists.