LECTURE 2 | Endogenous Money | Prof L. Randall Wray

Описание: LECTURE 2 – ENDOGENOUS X EXOGENOUS MONEY (Institute of Economics, Campinas, Unicamp, August 8th, 2018)

In this lecture, that is the second of the Course of Modern Money Theory, Professor L. Randall Wray discusses the endogenous Money approach, that is part of Modern Money Theory, and explains how it opposes to the idea that the supply of money is controlled by Central Banks (exogenous Money approach). In order to do that, he goes in detail about the creation of Money and the actual role of the Governments, of the banking systems and of the Central Banks in this process.

Does the central bank "control" the money supply? Does the classic textbook "money multiplier" accurately describe how banking operates? This lecture challenges one of the most fundamental concepts in conventional economics.

This is the second lecture in the "Introduction to Modern Money Theory" miniseries, delivered by Professor L. Randall Wray. The session provides a deep dive into the endogenous money approach, a cornerstone of Post-Keynesian thought and MMT.

Professor Wray systematically deconstructs the orthodox (exogenous) view, which posits that central banks control the quantity of reserves, which in turn determines the money supply via a stable multiplier [03:07]. He explains why this monetarist experiment failed in practice in the 1980s, as central banks found they could not, in fact, control the money supply [07:23].

The lecture presents the alternative: money is created endogenously (from within the system) by private banks. The core arguments include:

"Loans Create Deposits": Banks do not lend out pre-existing deposits. Instead, the act of making a loan creates a new deposit simultaneously [47:32]. Banks are not mere intermediaries; they are creators of money.

"Deposits Create Reserves": Banks do not need reserves before they lend. They find the reserves after the loan is made to settle payments with other banks [58:50]. The central bank, in its role as lender of last resort and manager of the payments system, must supply these reserves on demand to maintain stability [59:35].

Horizontalism: Wray explores the "horizontalist" view (Basil Moore), which argues that the central bank controls the price of money (the interest rate), not the quantity [57:07]. The supply of money is horizontal (perfectly elastic) at that target rate.

Keynes and Liquidity Preference: He contrasts the conflicting views of money in Keynes's General Theory (Chapters 13/15 vs. the more complex Chapter 17 [20:20]), arguing for the necessity of retaining liquidity preference to explain the spectrum of interest rates.

Wray's Synthesis: Wray concludes by presenting his own "vertical and horizontal" model [01:41:09], which integrates the (horizontal) private credit creation with the (vertical) injections of high-powered money from government spending (fiscal policy)—a factor he argues is critically ignored in most endogenous money models [01:31:01].

This lecture provides a comprehensive theoretical and historical analysis of how money is actually created in a modern capitalist economy, shifting the focus from quantity controls to interest rate policy and the demand for credit.

References:

Sheard, P. Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves. Standard &
Poor, Credit Market Services, Global Economics and Research. New York, 2013.
Desai, M. Endogenous and Exogenous Money. In: Eatwell J., Milgate M., Newman P. (eds)
Money - The New Palgrave. Palgrave Macmillan, London, 1989.
Bell, S. The role of the state and the hierarchy of money. Cambridge Journal of Economics, v.
25. Mar, 2001.

Lecture slides: https://goo.gl/w8ruh6

00:00:18 Introduction to the Endogenous Money Approach
00:02:58 Deconstructing the Conventional (Exogenous) Money Multiplier
00:08:03 Defining Endogeneity: Theoretical, Control, and Empirical
00:15:42 Keynes's Ambiguous Theories of Money (General Theory, Ch. 13 vs. 17)
00:29:41 The Monetary Circuit Approach (Graziani)
00:47:16 Core Principles: "Loans Make Deposits, Deposits Make Reserves"
00:57:07 The Horizontalist View (Basil Moore) and Interest Rate Targeting
01:14:28 The Structuralist Critique vs. Horizontalism
01:30:52 Wray's Synthesis: Integrating Government (Vertical) and Banks (Horizontal)
01:45:48 Warren Mosler's Contribution: Bonds as Interest Rate Maintenance

#money #moneytalks ##ModernMoneyTheory #economy

Images: Alexandre Motta