The abstract theory posits that money is endogenous to the economic system, created by commercial banks through credit expansion rather than exogenously controlled by central bank reserves or state mandate. Within Post-Keynesian and Circuitist frameworks, this mechanism defines a dynamic, debt-driven monetary system where financial institutions act as active agents determining loan supply based on demand for investment opportunities while accommodating reserve requirements only after the fact. This concept fundamentally redefines money from a static store of value in neoclassical models to an institutional construct driven by capitalist accumulation motives and intertemporal credit cycles.
The abstract theory posits that money is endogenous to the economic system, created by commercial banks through credit expansion rather than exogenously controlled by central bank reserves or state m…