I have long argued on this blog that Steve Keen needs to be taken seriously as an economic theorist and he had made a number of contributions that help solve key theoretical puzzles.
I will posit that one of these contributions is a major modification, indeed correction of Walras’s law. But if he is to be taken seriously then we have to see what economic theory looks like with these changes ‘plugged in’ -does it become more or less coherent? Here I look at his correction of Walras’s law and its implications for general equilibrium theory, a track I wonder if Professor Keen is interested in going down as, rightly, he sees the rigid and dogmatic approach to equilibrium theory in the current lucasian hegemony in economics as a major weakness.Decisions, Decision, Decisions
Keen's Modification of Walras’s Law, Applied to Walras’s Theories
Andrew Lainton
Lainton disagrees with the view that excess reserves don't affect bank lending and has put forward argument for it.
Growth in bank accounts do have an effect on economic activity if it leads to an increase in excess reserves which banks try to offset by increasing lending. Capital plus excess reserves is the banks budget constraint (we have covered this point, and the fallacy that reserves don’t matter in endogenous money theory, on this blog many times, and we are agreement here with all of the banking theory textbooks written from an endogenous money perspective). Of course if banks do not lend we get a seizing up of the monetary circuit.
