On exogenous money and bank behaviour: the Pandora's box kept shut in Keynes' theory of liquidity preference?

Abstract

This essay examines Keynes' views on banking behaviour and the relationships between central banks and banks as they evolved from his Tract on Monetary Reform to The General Theory. The objective is to clarify in what sense money may be exogenous in his final work. We identify a distinctly Keynesian position on the money-supply process, featuring money exogeneity due to bank behaviour. Our findings run counter to both neoclassical synthesis view on exogenous money cum passive banks as well as the post Keynesian challenge of endogenous money cum passive banks.

Keywords:

• Keynes Exogenous/ENDOGENOUS Money Bank Behaviour Liquidity Preference Rate Of Interest