ABSTRACT
Keynes assumed inelasticity of supply (or inelasticity of production) with respect to demand as a necessary attribute of money. But the post-Keynesian theory of money suggests that the money supply function should be viewed as horizontal, at a level of interest rates established by the central bank in setting the supply price of reserves. Interest rates rather than the money supply are the central bank’s true exogenous control variable. The money supply is endogenous, credit-driven and demand-determined. This paper examines why the later theory surpass Keynes’s theory of money.
KEYWORDS:
Money supply; post-Keynesianism