Endogenous money

The capitalist economy is a money economy. But how is money created and destroyed? Is it exogenous, a limited resource like gold, or is it endogenous, emerging from processes of production and distribution? How is credit generated and what is the relationship between credit and savings? One form of endogeneity arises from bank balance sheets and the theory of the monetary circuit. This reveals the credit relations between households and firms. However, banks also need a central bank as a lender of last resort. In recent years, central banks have deployed quantitative easing to deal with economic recession. The other form of endogeneity arises from the “verticalist” and the “horizontalist” analyses of the market for base money, whose demand and supply is brought into equilibrium by the money rate of interest. Government bonds are used in portfolios as risk-free financial assets.