Monies, debt and policy. The concept of endogenous money as a basis for household and non-financial companies instead of bank centered monetary statistics
Please cite the paper as:
“Merijn Knibbe, Erwan Mahé, Remco Schrijvers, (2013), Monies, debt and policy. The concept of endogenous money as a basis for household and non-financial companies instead of bank centered monetary statistics, World Economics Association (WEA) Conferences, No. 1 2013, The political economy of economic metrics, 28th January to 14th March, 2013”
Summary. The lack of attention to the stock of debt and, to an extent, the flow of credit by central banks and central bankers was one of the reasons why the Great Financial Crisis took them by surprise. Their focus on consumer price inflation led them astray. This is remarkable, as the very monetary statistics of the central banks are based upon the idea that money creation is ‘joined at the hip’ with debt creation: ‘loans create deposits’. The statistics show this, including sectoral differences and differences between loans. This enables central banks to differentiate between different sources of money growth. National differences as well as differences between debts for asset purchases and debts to finance productive investments come to mind. Monetary statistics which are more focused on national differences and debt will, in the Eurozone, also enable a more coherent formulation of national and Eurozone economic policies as the data matrix of the EU ‘Macro Economic Imbalances Procedure’ Eurostat financial accounts of countries already contains sectoral debt and asset price related variables. Using ‘debt’ as a standard element of monetary analysis however requires a wholesale acceptance of the idea, inherent in the statistics but not in central bank monetary philosophy, that money and debt creation constitute an endogenous, dynamic process largely outside the control of central banks. To enable this a much broader concept of ‘Money’ than the rather narrow concept which at the moment dominates monetary analysis is needed. Much attention is paid to establish such a concept, which unlike the present concept is consistent with monetary statistics, quadruple entry accounting, the reality of economic transactions as well as monetary history.