Post-Keynesian Economics: New Foundations, by Marc Lavoie
Chapter 4: Credit, Money and Central Banks

ABSTRACT

This article focuses on an analysis of chapter 4 of Lavoie’s magnus opus, Post-Keynesian Economics: New Foundations. It is the opening chapter of the macroeconomic section of the book. As we argue, following Keynes’s ‘monetary theory of production’, but also in line with Schumpeter, starting the discussion over macroeconomics with money makes sense. It is impossible, in post-Keynesian economics, to discuss the real economy independently of the monetary side of the analysis. In this sense, money and production, and debt, are linked within an endogenous money framework. This article covers and discusses all aspects of this chapter.

KEYWORDS:

• Endogenous money
• credit
• central banks
• interest rates

JEL CODES:

• B50
• E11
• E12
• E43
• E52

Acknowledgements

We would like to acknowledge the generous comments on both anonymous reviewers, as well as the Editor, Guillaume Vallet.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 In an email to Rochon, March 19, 2023.

2 Lavoie briefly returns to these debates, however, later on in the chapter.

3 It should be noted that Lavoie has been using balance sheets to advance his articles since at least 1984. See Lavoie (1984).

4 Rochon has been adamant about not calling this credit ‘rationing’ as it implies some fixed supply that must be rationed in light of strong demand, which is antithetical to the notion of endogenous money. In Lavoie (2022), the author uses the more appropriate expression, ‘credit constraints’.