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How Endogenous Money changes Macroeconomics because credit is part of aggregate demand & income

Summary:
This lecture to my Kingston Globalisation & Financialisation class elaborates on the role of credit in macroeconomics, which is only apparent if you realise that money is created (and destroyed) by lending by (and debt repayment to) the banking sector. This is ignored by Neoclassical economists, who continue to believe in the fantasy model of ...

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This lecture to my Kingston Globalisation & Financialisation class elaborates on the role of credit in macroeconomics, which is only apparent if you realise that money is created (and destroyed) by lending by (and debt repayment to) the banking sector. This is ignored by Neoclassical economists, who continue to believe in the fantasy model of Loanable Funds, despite the Bank of England saying emphatically in 2014 that the endogenous money model is correct and the loanable funds model is false.



I discuss Minsky’s attempt to formally model the role of credit, and why his mathematics was misinterpreted by other Post Keynesians–because “period analysis” (the treatment of time as discrete rather than continuous) damages the capacity of economists to think dynamically. In contrast, a continuous time expression of the identity of aggregate demand and aggregate income exposes the crucial role of credit, and its inevitability given that banks originate loans, and do not merely intermediate between savers and borrowers.



Finally I show how strongly the role of credit is empirically, and yet this continues to be ignored by mainstream economists. As Tom Ferguson once put it, “it takes special training not to be able to see” something which is so blatantly obvious in the empirical data.



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Steve Keen
Steve Keen (born 28 March 1953) is an Australian-born, British-based economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking about economics include John Maynard Keynes, Karl Marx, Hyman Minsky, Piero Sraffa, Augusto Graziani, Joseph Alois Schumpeter, Thorstein Veblen, and François Quesnay.

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