Philip Pilkington — The Theory of the Monetary Circuit: A Critique

In a series of comments on my previous post involving myself, Neil Wilson and Oliver it became clear quite quickly how closely my asset-pricing framework is tied up with the Post-Keynesian theory of endogenous money. Oliver suggested that I look into the Theory of Monetary Emissions (TME) — a forerunner of the modern ‘Circuitist school’ of monetary theory. In this post I consider how and why my approach differs from the Circuitist theory through a reading of Sergio Rossi’s excellent paper The Theory of Monetary Emissions which can be found in A Handbook of Alternative Monetary Economics.

I will not here deal with the theory of the monetary circuit itself. It is, in all respects, basically identical to the Post-Keynesian theory of endogenous money and can be summarised aptly in the phrase: loans create deposits. Where it departs from the latter is, and this will prove important in what follows, in its tendency to think primarily in terms of models — a tendency which readers of this blog will know I find objectionable. For me good theory starts from the ground up and the desire to build little models should take a back seat.

Fixing the Economists
The Theory of the Monetary Circuit: A Critique
Philip Pilkington
(h/t Clonal via email)