Sunday, September 25, 2016

Brian Romanchuk — Primer: Endogenous Versus Exogenous Money

One of the long-running debates within economics is the question whether money is endogenous or exogenous. Those who follow internet economic debates can expect this argument to flare up periodically. This debate should largely be considered dead and buried; and abolishing money from economic theory would put the final nail in the coffin…
Bond Economics
Primer: Endogenous Versus Exogenous Money
Brian Romanchuk

12 comments:

Matthew Franko said...

"I will not worry about the exact phrasings used historically"

Well imo most people dont have an ability to think this way... this is how a true scientist would think they can easily re-set t=0 to the present moment and go on from there...

This is where the whole "what is money?!!?" thing comes in in the first place... many people cant put the past behind us... "well we have been using that term for quite a while so we cant just get rid of it!"...

If these people were in Tropical Prediction, we would see a hurricane form off the Leewards on Monday morning at 8am est and the model would say direct hit on Miami on Friday... then 48 hours would go by and conditions would change... they would re-run the model (re-set t=0 to Weds at 8am) and the model would now say Charleston direct hit on Sunday..

Then these idiots would say "Jacksonville on Saturday!" even though the model says Charleston on Sunday, and if you were looking over their shoulders and saw it was really Charleston, you would ask them why they said "Jacksonville!" when the model now says Charleston and they would say: "Well, we previously told them Miami on Friday so we had to take that into account!"....

theyre idiots plain and simple... not qualified to be working ANY WHERE NEAR a field of study having ANYTHING near to do with our material systems AT ALL...

Six said...

What we mostly use for "money" are checking deposits which come into existence when banks make loans (endogenously) and when treasury sends payments (exogenously). Both methods expand bank balance sheets, albeit with different increases on the asset side. So is money created both endogenously and exogenously, or am I missing something?

Matthew Franko said...

No Six when the bank makes a loan the house is already built and a deed is established or the auto is already assembled and assigned a VIN number so "money" is already established by the time the loan is closed...

So what are created when the loan closes are USD balances not the metonym "money"... metonyms are not used by qualified scientists... qualified STEM people dont use metonyms in the conduct of their science...

a USD is not a metonym it is a scientific term to identify the units in quantifying the transaction...

The unwashed rabble, second rate intellects trying to operate in material systems would use the term "money!".... this is the #SAT400inMath hashtag people.... ie not qualified...

Six said...

Yes Matt, but I think I covered that with "What we mostly use for 'money'" ...

Brian Romanchuk said...

Six,

The problem historically was the lack of understanding how the central supplied resserves. It seems strange, but the operations were cloaked in secrecy.

Andrew Anderson said...

What we mostly use for "money" are checking deposits which come into existence when banks make loans (endogenously) and when treasury sends payments (exogenously). Both methods expand bank balance sheets, albeit with different increases on the asset side. So is money created both endogenously and exogenously, or am I missing something? six [bold added]

Not that I can see.

Andrew Anderson said...

I mean you're not missing anything that I can see.

And I agree with your definition of exogenous vs endogenous but would generalize them a bit as exogenous money = fiat, endogenous money = money created by the private sector.

Matthew Franko said...

"Yes Matt, but I think I covered that with "What we mostly use for 'money'" ..."

This is an example of how inappropriate the use of a metonym figure of speech in the place of an appropriate terminology is in science... you can say this and I can say that when we attempt to use a metonym... its by definition an figure of speech that lacks specificity....

In science we seek precision....

Six said...

For Matt;

USD balances come into existence when banks make loans (endogenously) and when treasury sends payments (exogenously). Both methods expand bank balance sheets, albeit with different increases on the asset side. So are USD balances created both endogenously and exogenously, or am I missing something?

I hope that clears things up :-)

Six said...

Better yet ...

Bank liabilities (accounted for and traded at par with USD) come into existence when banks make loans (endogenously) and when treasury sends payments (exogenously). Both methods expand bank balance sheets, albeit with different increases on the asset side. So are bank liability balances created both endogenously and exogenously, or am I missing something?

Tom Hickey said...

What we mostly use for "money" are checking deposits which come into existence when banks make loans (endogenously) and when treasury sends payments (exogenously). Both methods expand bank balance sheets, albeit with different increases on the asset side. So is money created both endogenously and exogenously, or am I missing something?

This is a different use of endogenous and exogenous. Here it is called Inside and outside money, depending on whether the deposit is created by bank credit or government spending.Government spending is exogenous to the economy and created by policy, but exogenous-endogenous in the context under discussion is over who controls the money supply —exogenous means the cdengral bank controls the money supply through monetary policy.

Matt Franko said...

"deposits which come into existence"

Well let's be careful here with talking about abstractions and then saying that abstraction "comes into existence"...

This is where it all starts...