By: guglielmo forges davanzati

guglielmo forges davanzati — Fri, 19 Oct 2018 11:17:58 +0000

Thanks for your comment. As regards to the first issue, one can consider Steve Keen’s view that, in a circuitist theoretical framework, aggregate demand is Y=C+I+DD, where DD is the variation of private debt (both for consumption and production).
I agree that the timing of the reimbursement of debt is a crucial issue and I will consider this point for the final draft of this paper.

By: Arturo Hermann

Arturo Hermann — Fri, 19 Oct 2018 09:06:06 +0000

I appreciate your presentation and will provide just a few remarks aimed at fostering a debate on these issues. So, regarding your paper my question is: the literature on monetary circuit rightly underscores the central monetary character of our economies. This implies that money plays a central role in all stages of economic processes, and, in particular, in providing new purchasing power to firms in order to set in motion their activities.
In this respect, an aspect deserving more attention pertains to the role of new credit in creating effective demand. For instance, only through new loans can a firm afford, here and now, investment expenses necessary to start production. And, in the sphere of consumption, only through new loans can a consumer afford to buy, here and now, some expensive durables (for instance, new cars).
These processes, by triggering the well-known multiplier-accelerator effects, will promote in most cases a substantial increase of GDP.
In such dynamics, a paramount role is played by the time and degree of debt repayment.
In fact, it is clear that the magnitude of increase of effective demand will be different if, say, one million euros of credit creation will be repaid (and in what degree and at what interest rate) in one, five, ten, twenty or fifty years.
Considering that the ratio of private debt/GDP has registered a many-fold increase over the latest decades across virtually all OECD countries, this points to the importance of length and imperfection of debt repayment in maintaining effective demand. Of course, this way of maintaining effective demand can create other problems, especially if it is accompanied by a widespread financialisation of the economy.
Another relevant aspect relates to the overall policies of banking system (including central banks). For instance, it will make a difference whether debt repayments would help to provide new loans to innovative firms, or instead be employed in speculative ventures.

Comments on: The Monetary Theory Of Production And The Modern Money Theory A Critical Assessment

By: guglielmo forges davanzati

By: Arturo Hermann