There’s been a bit of confusion of late in blogland about whether endogenous money really matters all that much. Endogenous money is, of course, the theory that, contrary to what mainstream economics would have you believe, private banks in modern capitalist economies actually create money out of thin air. In my experience, theoretical economists grasp very quickly how much of an impact such a theory would have if it were accepted as true. Less theoretically inclined commentators who are generally more interested in policy and practical matters, however, often express confusion over what exactly all the fuss is about. “Does endogenous money really matter?” they ask.
In what follows I will lay out the three leading reasons why endogenous money does, in fact, matter. While I will try not to go too much into theory I will briefly mention the ISLM, but as we move from point three to point one our discussion will become less and less abstract. Hopefully such an endeavour will play a part in lifting the fog surrounding the relevancy of endogenous money. Then it will simply be up to commentators themselves to decide what approach they want to accept.Naked Capitalism
Philip Pilkington: Three Reasons Why Endogenous Money Matters
(h/t paul in the comments)