Horizontalism
Encyclopedia
Horizontalism is an approach to money creation theory
pioneered by Basil Moore
which states that private bank reserves
are not managed by central bank
s. Instead reserves will be provided on demand at the bank rate
set by the central bank. This inverts the mainstream textbook money multiplier
relationship between deposits and loans since loans are said to cause deposits which in turn cause reserves.
Horizontalism influenced monetary circuit
theorists to develop the endogenous money
approach that was already nascent within Post-Keynesian academic thought. It states that an increasing demand for loans by bank customers leads to banks making more loans and creating more deposits, without regard to the size of the bank's available reserves. Thus credit money created by private bank
s can be seen to be leveraging of those reserves without the guidance of a particular leverage ratio, ie horizontal leveraging.
Monetary circuit theory
Monetary circuit theory is a heterodox theory of monetary economics, particularly money creation, often associated with the post-Keynesian school....
pioneered by Basil Moore
Basil Moore (economist)
Basil Moore is a Canadian Post-Keynesian economist, most known for developing and promoting endogenous money theory, particularly the proposition that the money supply curve is horizontal, rather than upward sloping, a proposition known as horizontalism...
which states that private bank reserves
Bank reserves
Bank reserves are banks' holdings of deposits in accounts with their central bank , plus currency that is physically held in the bank's vault . The central banks of some nations set minimum reserve requirements...
are not managed by central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s. Instead reserves will be provided on demand at the bank rate
Bank rate
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries...
set by the central bank. This inverts the mainstream textbook money multiplier
Money multiplier
In monetary economics, a money multiplier is one of various closely related ratios of commercial bank money to central bank money under a fractional-reserve banking system. Most often, it measures the maximum amount of commercial bank money that can be created by a given unit of central bank money...
relationship between deposits and loans since loans are said to cause deposits which in turn cause reserves.
Horizontalism influenced monetary circuit
Monetary circuit theory
Monetary circuit theory is a heterodox theory of monetary economics, particularly money creation, often associated with the post-Keynesian school....
theorists to develop the endogenous money
Endogenous money
In economics, endogenous money refers to the theory that money comes into existence driven by the requirements of the real economy and that banking system reserves expand or contract as needed to accommodate loan demand at prevailing interest rates. It forms part of Post-Keynesian economics...
approach that was already nascent within Post-Keynesian academic thought. It states that an increasing demand for loans by bank customers leads to banks making more loans and creating more deposits, without regard to the size of the bank's available reserves. Thus credit money created by private bank
Private bank
Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner...
s can be seen to be leveraging of those reserves without the guidance of a particular leverage ratio, ie horizontal leveraging.
Further reading
- Moore, Basil (1988). Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press. ISBN 0521350794