Making It Easier to Understand MMT (2) — Equilibrium, Demand, and Money

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In his critique of equilibrium economics, Kaldor points out that the economy is not driven by exogenous forces of the kind that ensure an unchanging framework conditioning, protecting, and perpetuating Walrasian equilibrating processes. Instead, the real economy is being compelled by endogenous forces to continuously adapt and evolve — and the pumping heart of these not always productive disruptions is modern fiat money. 

This explodes the neoclassical myth of the neutrality of money. Money shapes and changes the economy fundamentally — every day.

Money finances the very forces that build a reality in which there is no place for the abstract model of a moneyless barter economy as depicted by conventional economics.

At the same time, it is the pulse of demand that brings the economy closer to a more optimal state or pulls it away from it.

This pulse is fed my money.

The below excerpt is from here:

The ability to increase production in response to demand is achieved in modern capitalism by an endogenous money supply: a banking and monetary system where capital investment can be financed by new money.

Kaldor notes that

“This is the real significance of the invention of paper money and of credit creation through the banking system. It provided the pre-condition of self-sustained growth. With a purely metallic currency, where the supply of money is given irrespective of the demand for credit, the ability of the system to expand in response to profit opportunities is far more narrowly confined.” (Kaldor 1972: 1250).

BIBLIOGRAPHY
Debreu, Gerard. 1959. Theory of Value: An Axiomatic Analysis of Economic Equilibrium. Wiley, New York and London.

Kaldor, N. 1972. “The Irrelevance of Equilibrium Economics,” Economic Journal 82: 1237–1252.