Abstract for: Endogenous Money
This paper is for economics professors looking for additional ways to teach the so-called endogenous view of money creation; i.e., the view that money supply responds to the economy’s credit demands, in contrast to the so-called exogenous money multiplier view in textbooks that suggests that central banks can unilaterally adjust the monetary base to trigger desired changes in the money supply. ‘So-called’ because, as students discover with systems-based conceptual models and simulation experiments, these competing theories of money creation are both endogenous. In fact, the theory called ‘exogenous’ is shown to be merely an extension of its competitor, and the extension is a feedback loop! We conclude that money is always and everywhere endogenous. The systemic feedback perspective illuminates the relevant structure, and simulation shows how it works in practice. A revised version of this paper, with the title “Teaching Endogenous Money with Systems Thinking and Simulation Tools,” has been submitted to the International Journal of Pluralism and Economics Education. The model can be simulated online at https://sims.iseesystems.com/david-wheat/em/#page1.