Horizontalists and Verticalists: The Macroeconomics of Credit Money

Challenging the validity of much of mainstream monetary macroeconomics, Basil Moore argues that the money supply in modern economies is not under the control of central banks, but is not under the control of central banks, but is determined by borrower demand for bank credit. Horizontalists and verticalists then explores the implications of this perception for conventional macroeconomic theory. In his analysis, Moore distinguishes sharply between commodity, fiat, and credit money. he argues that much of mainstream macroeconomic theory is appropriate to a world of commodity or fiat money, but not to contemporary credit money economies. mainstream analysis takes the view that central banks have it in their power to initiate exogenous changes in the nominal supply of money. This 'Verticalist' view maintains that monetary change originates in changes in the high-powered base, which allegedly are under the control of the central bank. The author, in contrast, contends that the supply of credit money is endogenous and responds to changes in the demand for bank credit. Central bank open-market operations affect how required reserves are supplied between borrowed and nonborrowed reserves, rather than the total volume of reserves that is endogenously determined. This 'Horizontalist' view holds that central banks have the ability to set exogenously the supply price of the money market, but not the quantity of credit money. It follows that all models that treat the supply of credit as exogenous are fundamentally misspecified. Conventional views about the forces determining the money supply, national income, interest rates, exchange rates, inflation, and the role of saving are fundamentally in error. Moore concludes that a new macroeconomic paradigm must be developed and attempts to initiate the larger task of theory reconstruction that lies ahead.

Table of Contents:
Preface; Acknowledgments; Part I. The Endogeneity of Credit Money: 1. The differences between commodity, fiat, and credit money; 2. Contemporary commercial banking; 3. A simple model of bank intermediation; 4. The money 'multiplier'; 5. The endogeneity of the high-powered base; 6. The US money supply process; 7. A causality analysis of the determinants of money growth; 8. Keynes and the endogeneity of credit money; Part II. The Macroeconomic Implications of Monetary Endogeneity: 9. The determination of the nominal money supply; 10. Interest rates: a real or monetary phenomenon?; 11. Interest rates: an exogenous policy variable; 12. Monetary change, deficit spending, and the growth of aggregate demand; 13. The determination of the real money supply; 14. Inflation and velocity; 15. the dynamics of disequilibrium: toward a new macroeconomic paradigm; Bibliography; Index.