Horizontalism

A post-Keynesian theory of endogenous money in which bank lending creates deposits and central banks accommodate the resulting reserve demand at a policy-controlled interest rate.

Version

v2 · 2026-09-19 · History

Domain-specific #

4915

Domain group

Social Sciences

Origin domain

Economics & Finance

Subdomains

Monetary Economics, Endogenous Money → Economics & Finance

Core Idea

Horizontalism holds that the central bank sets the short-term reserve price while supplying reserves elastically, so the quantity of money is driven endogenously by credit demand rather than an exogenous reserve stock. Banks extend credit to acceptable borrowers and create deposits; payment and reserve requirements then generate reserve demand that the central bank accommodates to maintain its target rate. The abstraction is therefore identified by a declared carrier, a transformation or constraint over that carrier, and an invariant that tells an analyst whether the named structure is genuinely present.

How would you explain it like I'm…

Loans Come First

When a bank lends someone money, it adds new money to that person's account. There's also a big boss bank that banks get special money from. In this idea, the boss bank picks a price for that special money, then gives banks as much of it as they need at that price. So how much money there is depends on how much people want to borrow.

Money Made by Borrowing

Horizontalism is an idea about where money comes from. It says banks first lend to borrowers they trust, and that lending creates new deposits in people's accounts. Banks then need special money called reserves, for making payments and meeting rules. The central bank sets the price of reserves, which is an interest rate, and supplies whatever amount banks need to keep that price steady. So the central bank controls the price, not a fixed amount, and the amount of money grows or shrinks with how much people want to borrow.

Flat Reserve Supply View

Horizontalism is a post-Keynesian view of how money supply works. It says the central bank sets the short-term interest rate on reserves and then supplies reserves elastically, as much as banks demand at that rate. Picture the reserve supply curve as a flat, horizontal line at the target rate, which is where the name comes from. The causal order runs from loans to deposits to reserves: banks lend to acceptable borrowers, which creates deposits, and the resulting payment and reserve-requirement needs create demand for reserves that the central bank accommodates. This contrasts with the textbook money-multiplier picture, where the central bank fixes the reserve quantity and lending follows. On this view, the quantity of money is endogenous, driven by credit demand.

 

Horizontalism is a post-Keynesian interpretation of endogenous credit money. The central bank's operational target is the price of reserves, the short-term policy rate, and it supplies reserves elastically at that rate, so the reserve supply schedule is horizontal. Banks extend credit to creditworthy borrowers and thereby create deposits. Payment settlement and any reserve requirements then generate demand for reserves, which the central bank accommodates to keep its target rate. The causal sequence is loans to deposits to reserves, the reverse of the exogenous money-multiplier story in which a fixed reserve stock constrains lending. The money stock is therefore determined by credit demand, not by a quantity chosen by the central bank. The claim is regime-relative: it holds where the central bank controls the reserve price more directly than a fixed quantity. Evaluating it means checking that causal ordering and that control structure under the stated regime.

Scope of Application

Horizontalism belongs to monetary economics and is useful where the analyst can specify commercial banks, borrowers and deposits, central-bank reserves, a policy interest rate, reserve demand and supply, creditworthiness, and a monetary operating framework, then evaluate the causal sequence runs loans to deposits to reserves and the central bank controls the reserve price more directly than a fixed quantity under the stated regime. The scope is broad within that domain but bounded by the need for the causal sequence runs loans to deposits to reserves and the central bank controls the reserve price more directly than a fixed quantity under the stated regime. The entry records a descriptive analytical identity; practical use requires the governing domain's evidence, standards, and safety obligations.

Clarity

The abstraction clarifies a crowded vocabulary by making the causal sequence runs loans to deposits to reserves and the central bank controls the reserve price more directly than a fixed quantity under the stated regime the center of the account. A claim should name the carrier, the governing operation or relation, the applicable assumptions, and the recognition test. A bare label is insufficient because the name Horizontalism can be used for a formal identity, an implementation, or a neighboring result unless carrier and convention are stated.

Manages Complexity

Without the abstraction, an analyst must reason directly over many local details: the carrier roles, admissibility assumptions, competing conventions, derived invariants, boundary cases, and proof or validation obligations specific to Horizontalism. Horizontalism compresses them into the roles in the structural signature. That compression permits comparison across instances without erasing the variables that determine validity. It also exposes which details may be varied safely and which are constitutive.

Abstract Reasoning

1. Identify the carrier. State what the elements, states, objects, or observations are: commercial banks, borrowers and deposits, central-bank reserves, a policy interest rate, reserve demand and supply, creditworthiness, and a monetary operating framework. Reject examples whose alleged carrier belongs to a different problem.
2. Lock the constitutive rule. Express the causal sequence runs loans to deposits to reserves and the central bank controls the reserve price more directly than a fixed quantity under the stated regime independently of one notation or implementation.

Knowledge Transfer

Knowledge transfers strongly among subfields of monetary economics because they reuse commercial banks, borrowers and deposits, central-bank reserves, a policy interest rate, reserve demand and supply, creditworthiness, and a monetary operating framework, Banks extend credit to acceptable borrowers and create deposits; payment and reserve requirements then generate reserve demand that the central bank accommodates to maintain its target rate., and type the carrier, state every parameter and convention in the definition, test that the causal sequence runs loans to deposits to reserves and the central bank controls the reserve price more directly than a fixed quantity under the stated regime, compare the nearest accepted identity, and report counterexamples, uncertainty, and limiting cases.

Relationships to Other Abstractions

Current abstraction Horizontalism Domain-specific

Parents (1) — outgoing typed relations

• Horizontalism is a kind of Causality Prime

  The theory proposes a specific causal ordering among loans, deposits, reserves and policy rate.

Hierarchy path (1) — routes to 1 parentless root

• Horizontalism → is a kind of Causality → is a kind of Dependency

Neighborhood in Abstraction Space

Horizontalism sits in a crowded region of the domain-specific corpus (28^th percentile for distinctiveness): several abstractions share nearly its structure, so a description that fits it tends to fit its neighbors too.

Family — Economic & Financial Indicators (42 abstractions)

Nearest neighbors

• Quantitative easing — 0.91
• Currency crisis — 0.90
• Balance of payments — 0.90
• Credit channel — 0.89
• Taylor rule — 0.89

Computed from structural-signature embeddings · 2026-10-25