On the Controversy between the Endogenous and Exogenous View of Money Supply

The controversy between exogenous view of Monetarist School and endogenous view of Post-Keynesian School has lasted about half a century, and recently has become a puzzle on the loans create deposits or deposits create loans. This paper solved controversy based on relationship between money and credit. Money(bank credit) and commercial credit are both debit-credit relations between economic agents, but money has higher credit level than general commercial credit. The root of endogenous money supply is, in context of widespread uncertainty, economic agents need bank credit of higher level to replace and liquidate commercial credit to reduce risks. When money supply is inconsistent with upgrading and liquidation needs of general commercial credit, conversion between money's functions of deferred payment and store of value and conversion between money and quasi-money will contribute to balance between supply and demand. Under current monetary and financial system, endogenous nature of money supply cannot deny its exogeneity, and money supply is created both by endogenous and exogenous channels.