Sammendrag
The paper discusses models of a macroeconomic circuit with firms that borrow and households that consume, buy securities from firms, or hoard their income. Households' "propensity to hoard" -- or the complementary concept, the "propensity to buy securities from firms" -- is frequently used by Post Keynesians to signify how households manage their flow of savings. It it is shown that this concept is flawed: it implies unbounded accumulation of money with households and persistently decreasing money velocity -- even in an otherwise equilibrium case when all other variables are constant. The main reason for this error is a common modeling assumption in the PK literature about hoarding which -- without recognising this -- implies that money is permanently taken out of circulation. The same hoarding assumption is also widely used by Circuitists. The paper also discusses the dispersion-in-time phenomenon that occurs whenever money is received by an agent or enters a sector. This phenomenon invalidates the method of analysing the hoarding problem in the economic circuit in single "periods". A better economic circuit model is developed using linear systems theory. Using this model, the long term dynamics of a macroeconomic circuit with a financial sector is analysed, leading to results that differ from those following from the -- among PK/Circuitists generally accepted -- model. The paper concludes that the monetary circuit cannot solely be analysed verbally. To achieve a correct understanding of the time path of relevant variables one must use differential (or difference) equations. This also enables accounting for the effect of interest on loans, which is usually abstracted from in verbal circuit analysis. In this the paper is a contribution in the debate about the role of mathematics in economics -- taking the position that the common skepticism in the progressive/heterodox community against mathematics is harmful and throwing the baby out with the bathwater.
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