Endogenous Money in 21st Century Keynesian Economics

Abstract

This chapter provides a theoretical treatment of money and its role in 21st century Keynesian economics and in the 21st century economy, e. g. with some reference to the credit crisis of 2007 onwards. To start, the treatment of money in 20th century Keynesian economics is reviewed, including that provided by Keynes. Then the current theory of endogenous money is briefly summarised as it developed towards the end of the century and into the current century. The chapter continues by elaborating the extensions to the consensus Post Keynesian theory in the literature. Money is defined in terms of seven characteristics: 1. trust, 2. divisibility, 3. "invariance" in value over space and time, 4. limitation in supply, 5. acceptance as a unit of account, 6. convenience and 7. attractiveness. The chapter goes on to elucidate the concept of economic invariance. The role of money in spatial and temporal economics is briefly addressed, so that the essential symmetry between exchange rates (exchange rates for different moneys at a point in time) and interest rates (costs of or return to holding one money over time) is highlighted. There is a brief discussion of the role of money in the current crisis. The chapter concludes with a discussion of one more attribute of money: money as magic.