Philip Pilkington — Interest Rates and ‘Reserve Constraints’: Why Endogenous Money Works Without Central Bank Intervention

That is how financial markets work. They are not price versus quantity markets. Rather they are price versus perceived risk markets. And this ties back into Keynes’ theory of financial markets. To put it very briefly: if people are highly confident in the financial markets and there is a fixed amount of money in those markets the velocity of the money in the financial markets can speed up to accommodate any increase in the flow of borrowing. This is actually very obvious but mainstreamers don’t dig very deep into these things generally.

This blog post is long enough but I have fully formalised Keynes’ theory in the book that I am nearly finished writing. I think that this is the first time it has been done. Since I have given more than enough content away on this blog for free you will have to wait until it comes out, buy it and then you can get a better grasp on Keynes’ theory; the only theory that really fits with the historical record in this regard.

Fixing the Economists
Interest Rates and ‘Reserve Constraints’: Why Endogenous Money Works Without Central Bank Intervention
Philip Pilkington