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Leading Issues

Development Intelligence Organization

Leading Issues

Two important publications undermine the main operational logic of monetarism, as practiced over the last century.

The most significant is the recent publication produced by Hector McNeill of the Systems Engineering Economics Lab.

This Charter House Essay in Political Economy1 published in 2020, casts serious doubt on the efficacy of the Quantity Theory of Money (QTM) as a predictive model. McNeill shows that two key determinants are missing from the equation. These are savings and asset holdings.

McNeill improved the Cambridge QTM equation, which contains saving, by adding assets. The New Real Theory of Money equation provides a transparent explanation of the reasons for the negative impacts of quantiative easing in terms of depressed real incomes and investment.

A New Real Theory of Money

The second publication was produced by Michael McLeay, Amar Radia and Ryland Thomas of the Bank of England's Monetary Analysis Directorate.

This note, published in 2014 clarified that money volume, as part of monetary policy, is in fact debt raised by banks by entering a credit (debt) in the ledger of an account.

Money creation in the modern economy

1 The series, Charter House Essays in Political Economy is published by Hambrook Publishing Company.

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