Is Kaldor's Theory of Money Supply Endogeneity Still Relevant?

Abstract

Contemporary monetary theory is characterized by the predominance of the monetarist thesis. Paradoxically, the widespread acceptance of the monetarists' conclusions has coincided with the disappearance of the stable relation between money stock and nominal income from the 1980s onwards. These results did not call the monetarist theory into question, but instead stimulated the elaboration of various proposals for the modification of the monetary authorities' operative schemes. Each of these proposals gives rise to some perplexity. These anomalies provide the justification for this paper, which sets out to analyse the characteristics of the money supply endogeneity theory, a theoretical approach initiated in the 1970s thanks to Kaldor's seminal contribution, with the objective of demonstrating the inconsistencies in the monetarists' conclusions. It is intended to show that the debate on the endogeneity theory developed by the post‐Keynesians has overlooked an essential aspect of Kaldor's theory, the examination of which permits: (a) the elaboration of an important criticism of monetarism; and (b) the development of a theory of credit and of financial intermediaries that highlights elements of Keynes's theory that have been neglected by the traditional interpretation.

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