MONETARY: Prof. Choudhury -- exogenous/endogenous money

["Rodney Shakespeare" <Rodney.Shakespeare1@btopenworld.com>]

Dear Monetary Reform members,
I have been asked to put Professor Choudhury's email to Global Justice
Discussion  onto Monetary Reform.  It is immediately below.
Rodney Shakespeare.
---------------
I have the next ten minutes to respond to the concept of 'exogenous' versus
'endogenous' money. For further details see Choudhury's Money in Islam
(Routledge, 1997), Money and Real Economy (WisdomHouse Academic, 2004), The
Islamic World-System, a Study in Polity-Market Interaction (Routledge,
2004), "Exogenous and endogenous money" in Encyclopaedia of International
Political Economy (Routledge, 2003), M. Desai "Exogenous and endogenous
money" (M. Milgate et al, New Palgrave: Money, W.W. Norton, 1989).

Exogenous money is money created through the route of promissory notes in a
fractional reserve system. There is no one-to-one connection between real
economic
activities in the form of productive undertaking and the monetary support in
demand and thereby in supply to back up such activities. Money is created
upon expectations and promise by the borrowers who inevitably go through
their financial intermediaries for such loans. Thus interbank loans are
created by an immense magnitude of multiple credit creation, which all carry
a heavy interest payments on borrowed funds. The socially depriving
consequences upon those who cannot give collateral is thus noted in favor of
the giant banks and corporate masters in the mercantilist and financial
globalization environment.

Endogenous means an interactive systems-based circular interrelations. In
this
particular case it means money and real economy interacting in mutual
relations with the quantity of money needed to back up real economic
activities. Such
activities should be further qualified by their social appropriateness.
Otherwise sustainability of the interrelations will not be maintained.
Endogenous money can inevitably be generated by a new central
bank-commercial bank-economy/market interrelations. They shy away from
fractional reserve requirement system into 100 per cent reserve requirement
monetary system. Furthermore, such a quantity of money is asset-backed by a
stable
numeraire. The numeraire proved to be gold until the end of the fixed
exchange rate regime with the break up of the Bretton Woods. See papers by
Professor Robert Mundell. Choudhury is to present his paper on this theme at
the Single Global Currency forum in Bretton Woods, New Hampshire.

Endogenous money as asset-backed circulatory money in the real economy
pursuing economic and social projects is thus associated with spending in
the good cause, which in turn enhances productive economic activity and
social and economic sustainability at all levels of the social spectrum.
Endogenous money in terms of the close money and real economy linkages
cannot therefore bear a rate of interest economy-wide. The interest rate is
low and in the limiting case zero with no inflation as long as the closest
possible linkage can be maintained in the money-real economy circular (i.e.
endogenous) interrelations.

Endogenous money as defined above is distinctly different from plastic money
and e-money. In the literature plastic money and e-money have also been
referred to as endogenous money. This is simply because money of these
categories follow consumer preferences. There may not be any social
objectivtity in such a way of creating money.

Professor Masudul Alam Choudhury

--------------------
----- Original Message -----
From: "Rodney Shakespeare" <Rodney.Shakespeare1 at btopenworld.com>
To: <Discussion at globaljusticemovement.net>
Sent: Monday, May 10, 2004 5:24 PM
Subject: [GJM] Exogenous and endogenous money

> Dear John Gelles,
> At the recent Trisakti conference I proposed the following defintion of
> exogenous and endogenous money and it was accepted by the two Conference
> Chairman:--
> -------------
> 'Exogenous' means coming from without, from abroad, from a foreign
country.
> Moreover, any money that does not arise from within the core of the
society  itself - from its central bank - is also exogenous.  Thus, in
addition to
> money coming from abroad, interest-bearing fiat money created out of
nothing
> by the international banking system operating inside a country is also
exogenous money.
> In contrast, 'endogenous' means coming or growing from within and so an
> endogenous money supply means a supply genuinely arising from within the
> society.  In the case of Islamic societies, that means money coming from
the
> bayt al mar - the Islamic Treasury, or central bank.
> --------------------
> I add that Islamic academics are greatly concerned that the new endogenous
> money, in the form of interest-free loans,  should be concentrated on
> productive capacity in a way which also implements social and economic
> justice.
>
>   Moreover, the definitions of exogenous and endogenous are crucial and
> conventional neoclassical economics is now desperately trying to fodge the
> issue (e.g. by saying that bank-created money is endogenous) so that the
> basic disntinction -- set out above-- is not understood.
>
> Rodney Shakespeare.
>






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