The Norms Guiding the Creation of Money

The banking system governs the issuance of money.  Money serves the process of production and exchange of goods and services.

Essentially the financial problem consists in finding a stable and permanent solution for the monetary requirements of a long-term expansion. [CWL 21, 100]

the scarcity of the dummy is attended to by the technicians of the technical rules governing its issuance.  Whether it issues from the printing press or from the credit structure makes no difference. [CWL 21, 37-39]

the normal entry and exit of quantities of money to the circuits or from them is by the transfers from the redistributive to the supply functions.  CWL 15, 64 ]

Transfers to supply, to (S’ – s’O’) and (S” – s”O”), are the (proper) mode in which increments in quantities of money enter the circuits.  [CWL 15, 61]

Equations (4a) and (3a) are mathematically similar. They then give us a simple model of how all exchange money enters and leaves the system as credit money in a single circulation each period. [Burley, Evolutionary von Neumann Models, p. 272]

On the other hand, given an initially stable situation, the release of (large sums of additional) money directly into the hands of consumers through (D’-s’I’), which money has not been or will not be justified by a producing of (new) real goods, is purely inflationary.  An excess release of money is identically a non-normative, unnatural, distortive boom, while an excess contraction of the money supply is identically a non-normative, unnatural, distortive slump. We say identically because such changes in the money supply and their use in the real circuits are the explanation of the boom or the slump.  Such changes constitute the boom or slump.

With G at zero, positive or negative transfers to basic demand (D’-s’I’) and consequent similar transfers to surplus demand (D” – s”I”) belong to the theory of booms and slumps.  They involve changes in (aggregate basic or aggregate surplus) demand, with entrepreneurs receiving back more (or less) than they paid out in outlay (which includes profits of all kinds).  The immediate effect is on price levels at the final markets, and to these changes (in price), enterprise as a whole responds to release an upward (or downward) movement of the whole economy.  [CWL 15, 64]

Thus we define the financial problem as the problem of working out and applying the view that money is public bookkeeping.[1]  The grounds for this position may be summarized as follows. … Money is an instrument invented by man to make possible a large and intricate exchange process.  While there is no simple and even perhaps no ascertainable correlation between the quantity of money and the volume of exchange activity,[2]it remains true that variations in the volume, if not to result in inflation or deflation, postulate some variations in the quantity.  Now in the long run these variations in quantity can be had only by the introduction of a money of account, [CWL 21, 104]

… when we say that the idea of money as a system of public bookkeeping has to be worked out and applied, we mean above all the necessity of a money whose laws (of issuance from the Redistributive Function and of circular flows within the two real circuits connected by crossovers) coincide with the laws of the economic process, so that instead of conflict between real possibility (productive possibility) and financial possibility[3]we shall have harmony, [CWL 21, 105]

[1]Which is not to be identified with corporate or conventional National Income accounting

[2]Because of the rapidity of turnover, as contrasted with the efficiency of the use of money in transactions

[3]ruled once upon a time by a fickle quantity of gold and a fixed exchange rate for a certain quantity of gold