Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56988
Authors: 
Wray, L. Randall
Year of Publication: 
2011
Series/Report no.: 
Working paper, Levy Economics Institute 700
Abstract: 
This paper takes off from Jan Kregel's paper 'Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?' (1986), which aimed to remedy shortcomings in most expositions of the circuit approach. While some circuitistes have rejected John Maynard Keynes's liquidity preference theory, Kregel argued that such rejection leaves the relation between money and capital asset prices, and thus investment theory, hanging. This paper extends Kregel's analysis to an examination of the role that banks play in the circuit, and argues that banks should be modeled as active rather than passive players. This also requires an extension of the circuit theory of money, along the lines of the credit and state money approaches of modern Chartalists who follow A. Mitchell Innes. Further, we need to take Charles Goodhart's argument about default seriously: agents in the circuit are heterogeneous credit risks. The paper concludes with links to the work of French circuitist Alain Parguez.
Subjects: 
circuit approach
liquidity preference
banks as ephor of capitalism
J. M. Keynes
J. A. Schumpeter
A. Parguez
J. A. Kregel
chartalist
modern money theory
state money
credit money
default
JEL: 
B2
B24
B25
B31
B51
B52
E11
E12
E41
E43
E51
Document Type: 
Working Paper

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