Behavioral Finance Lecture 07: Endogenous Money & Circuit Theory

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I’ve done a demo­li­tion der­by on Neo­clas­si­cal eco­nom­ics in the pre­vi­ous 6 lec­tures; for the next 6, I’ll build a real­is­tic alter­na­tive. First stop is the impor­tance of the endo­gene­ity of mon­ey in utter­ly revis­ing macro­eco­nom­ic analy­sis. In the first half of this lec­ture, I out­line the basic propo­si­tions in endoge­nous mon­ey, and some of the dis­putes that have arisen in the very ear­ly days of this the­o­ry. By way of anal­o­gy, the state of endoge­nous mon­ey the­o­ry today would be a bit like the ear­ly days of the Coper­ni­can mod­el of the solar sys­tem: the fun­da­men­tal idea is cor­rect, but many of the argu­ments that peo­ple make about it reflect con­fu­sion about a new con­cept.

I then con­clude with an out­line of the bril­liant insights from the Cir­cuitist School, and in par­tic­u­lar from Augus­to Graziani, into why a mon­e­tary econ­o­my is fun­da­men­tal­ly dif­fer­ent to the neo­clas­si­cal fic­tion of a barter econ­o­my. (PPT Slides: Debt­watch Sub­scribers [Mem­ber­ship need­ed–non-mem­bers click here]; CfE­SI Sub­scribers  [Mem­ber­ship need­ed–non-mem­bers click here])

Though Grazian­i’s fun­da­men­tal insights were bril­liant, when he attempt­ed to devel­op a (ver­bal) mod­el of this process, he made many errors which arose from con­fus­ing stocks with flows. I out­line the accept­ed ver­bal mod­el of the mon­e­tary cir­cuit pri­or to my own research, and point out the flaws in this ver­bal argu­ment as a pre­lude to devel­op­ing my math­e­mat­i­cal mod­el of the Mon­e­tary Cir­cuit in the next lec­ture. (PPT Slides: Debt­watch Sub­scribers; CfE­SI Sub­scribers)