Joseph Schumpeter’s Credit View of Money: a Contribution to a “Monetary Analysis” of Capitalism

This paper highlights Joseph Schumpeter’s monetary thought, which appears to be neglected, compared to his theory of innovation and entrepreneurship. In particular, the author addresses his completely unknown writing “Das Wesen des Geldes” focused on the topic of money. This book uncovers the “essence” and the logic of money and credit that stem from Schumpeter’s experience as the finance minister and the president of a private bank. Relying on this experience, Schumpeter rediscovers and deepens the credit theory of money, which interprets the money as an institution and a social accounting system, with the banking system seen as the central agency of capitalism. “Das Wesen des Geldes” is particularly interesting, since it is the outcome of Schumpeter’s elaborations within the framework of the German Historical (Ethical) School headed by Gustav Schmoller. This was followed by his moving to the United States, and his views reversed to support the neoclassical framework in line with Marshall – Taussig canon. The fact that “Das Wesen des Geldes” was not published posthumously until 40 years after it was written, shows the coercive power of the rules within the communities of academic economists.

Central bankers and the rationale for unconventional monetary policies: reasserting, renouncing or recasting monetarism?

The purpose of this paper is to examine the rationale for the unconventional monetary policies adopted by central banks in response to the Global Financial Crisis. Quantitative easing appears to be a return to monetarist principles. Indeed, the Bank of England emphasised a causal chain running from increases in broad money to spending and inflation, while the Bank of Japan later pointed to a theorised relation between base money and expected inflation. Some aspects of monetarism have been renounced, albeit not necessarily with convincing reasoning. Monetarist principles can also be discerned in the ‘credit view’ associated with the research of two-term US Federal Reserve Chair, Ben Bernanke. An understanding of the banking system and the channels of monetary transmission is still a work in progress.

The existence of a stable money multiplier in the small open economy of Kazakhstan

Purpose The purpose of this paper is to examine whether a long-run stable money multiplier exists in Kazakhstan. It also investigates whether different episodes of currency shocks, including the financial crisis and recession of 2008–2010, have affected the working of the money multiplier in Kazakhstan. Design/methodology/approach The long-run multiplier is tested employing three cointegration tests: Engle–Granger (1987), Phillips–Ouliaris (1990) and Johansen and Juselius (1990). Findings The results of cointegration and coefficient restrictions tests are consistent with the money multiplier when broad money (M2 and M3) is used rather than when narrow money (M1) is used. The relationship between broad money and monetary base is structurally stable when examined on the basis of a dynamic (an error-correction) model. However, the M2 multiplier performs better than the M3 multiplier. Research limitations/implications This paper is restricted to testing a mechanistic version of the money multiplier and its stability using both narrow (M1) and broad money (M2 and M3) supplies. Thus, the paper focusses on the money view of the multiplier rather than the credit view of the multiplier. Practical implications One implication that emerges from the findings of this paper is that the National Bank of Kazakhstan can control M2 by controlling the monetary base, and hence the latter can serve as an indicator for monetary policy. Social implications The validity of the money multiplier implies that monetary policy can be conducted to control the money supply and the provision of bank credit to private sector to stabilize economic activity, thereby leading towards social stability in the economy as well. Originality/value In addition to offering a coherent survey of the literature on the standard money multiplier, this paper is a first attempt to find a stable money multiplier for Kazakhstan.

Perspectives on Monetary Policy and Cost of Capital: Evidence from Turkey

The target of monetary policy is generally set as to create an environment of manageable employment and affordable long-term interest rates. However, priorities of central banks may differ depending on economic and financial circumstances of individual countries. Modern approaches to monetary policy transmission can be grouped under two headings, Money View and Credit View. The money view concentrates on interest rates to explain the effects of monetary policy on aggregate spending by creating an interest rate channel. The credit channel transmission approach focuses on the supply of credits by banks following a monetary policy shift in interest rates. In 2010, the Central Bank of Turkey (CBT) developed an interest rate corridor shaped by one-week and overnight repo lending to the financial banks to absorb excessive volatility caused by short-term capital inflows. Under this framework, the CBT implements its monetary policy in two ways; firstly it can alter the interest rates of weekly repo as well as O/N lending rate. Secondly, it can configure the funding structure it provides to the financial intermediaries. In such a framework, the interest rate transmission mechanism has been operated by two benchmark interest rates, one of which is the weighted average of the cost of funds provided by the CBT and the other is the interest rate in Borsa Istanbul (BIST) money market transactions at an overnight maturity. There is a strong co-movement between the interest rates and they are affected by the movements in the CBT lending rate in both directions. Interest rates applied to deposits and loans by banks are affected by the policy rate (CBT Average Funding Rate) and the market rate (BIST O/N Repo Rate).