Deficit Owls | Endogenous Money, Explained Simply @deficitowls5296 | Uploaded September 2017 | Updated October 2024, 5 hours ago.
Nathan Tankus, of the Modern Money Network, explaining the difference between exogenous money theories and endogenous money theories. "Exogenous" means that something is determined outside the system, such as by the government deciding what the amount of money should be. "Endogenous" means that something is determined by the internal workings of the system itself, such as the economic forces of private sector borrowing and lending determining what the amount of money is.
Orthodox economics often uses an exogenous money perspective: the central bank decides what the quantity of money should be, through the "money multiplier." However, there is now an overwhelming amount of evidence (and even some neoclassicals are starting to admit) that this is not how it works in real life. In the real world, the quantity of money is endogenous: money is created when banks make loans, and destroyed when people repay debt. Though the central bank might exert some influences on this (such as by setting a price, the interest rate, or by imposing regulations on certain activities), it is in fact the needs of the economy, and individual borrowing and lending decisions, that determine how much money there is.
This has a few implications.
1) There is no "fixed" quantity of money. Money is constantly being created and destroyed, every second of every day.
2) There is no such thing as a limited pool of funds available for investment. In the orthodox story, there's a fixed supply of funds available for business investment (which must be shared by the public and private sector). In the real world, whenever there's a business venture that's expected to be profitable that needs to be financed, the financing is created, from thin air, and destroyed once the venture is completed.
3) There is no such thing as the government "choosing" to "print money." The private sector determines how much money exists. If it doesn't have enough, it will be created. If it has "too much," it will be destroyed, as loans are repaid.
4) There is no such thing as "crowding out," where government competing for a fixed pool of funds drives up interest rates.
Watch the whole video here: youtube.com/watch?v=Fnqk41vUfrQ
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Nathan Tankus, of the Modern Money Network, explaining the difference between exogenous money theories and endogenous money theories. "Exogenous" means that something is determined outside the system, such as by the government deciding what the amount of money should be. "Endogenous" means that something is determined by the internal workings of the system itself, such as the economic forces of private sector borrowing and lending determining what the amount of money is.
Orthodox economics often uses an exogenous money perspective: the central bank decides what the quantity of money should be, through the "money multiplier." However, there is now an overwhelming amount of evidence (and even some neoclassicals are starting to admit) that this is not how it works in real life. In the real world, the quantity of money is endogenous: money is created when banks make loans, and destroyed when people repay debt. Though the central bank might exert some influences on this (such as by setting a price, the interest rate, or by imposing regulations on certain activities), it is in fact the needs of the economy, and individual borrowing and lending decisions, that determine how much money there is.
This has a few implications.
1) There is no "fixed" quantity of money. Money is constantly being created and destroyed, every second of every day.
2) There is no such thing as a limited pool of funds available for investment. In the orthodox story, there's a fixed supply of funds available for business investment (which must be shared by the public and private sector). In the real world, whenever there's a business venture that's expected to be profitable that needs to be financed, the financing is created, from thin air, and destroyed once the venture is completed.
3) There is no such thing as the government "choosing" to "print money." The private sector determines how much money exists. If it doesn't have enough, it will be created. If it has "too much," it will be destroyed, as loans are repaid.
4) There is no such thing as "crowding out," where government competing for a fixed pool of funds drives up interest rates.
Watch the whole video here: youtube.com/watch?v=Fnqk41vUfrQ
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
And follow our sister page, Modern Money Memes:
facebook.com/ModernMoneyMeme
twitter.com/ModernMoneyMeme
