Daily Archives: April 14, 2016

Money and Banking Part 12: Economic Growth and the Financial System

By Eric Tymoigne

Money is the blood of capitalist enterprise and finance is about money now for money later. As such a well-developed financial system is essential for economic activity in a capitalist economy. The broader the range of promissory notes that can be issued, the more accommodative the financial system is to the demands of the productive system. Households cannot fund the purchase of a house with a credit card and there is no point in buying groceries with a 30-year mortgage. While all this may seem obvious, economists have been divided about the relevance of finance for economic activity. This divide ultimately rests on different premises on how to do economics, which John Maynard Keynes characterized as Real Exchange Economy versus Monetary Production Economy.

Continue reading