Introduction

In Chapter 4, we presented a framework for analysis that falls within what we have called, after Schumpeter, “monetary theories of credit”; we addressed these theories mainly to the exchange process. In this chapter, we present an extension of the framework that moves beyond just “monetary theories of credit” to present “credit theories of money,” again after Schumpeter. We will present these theories in the contexts of both the exchange process and intermediation.

The understanding that exchange can be executed by debts and credits in the formulations defined in Chapter 4 – Private Debt Certificates (PDCs) – had to wait for Henry Thornton, and then one hundred years later, for Knut Wicksell. Analytically, this unconventional approach came into some conflict with the Quantity Theory. The quantities of the mediums used in payments were demand-determined. Thus, in this later approach, one faced the endogenous determination of credit in its role in the exchange process. The role of money in a pure credit economy will be discussed in the chapter on Wicksell.

The following discussion represents an attempt to invert the customary logical order of analysis that we covered in Chapter 4, and which was used by almost all scholars. We will describe and analyze a pure Accounting System of Exchange (ASE): a system of exchange based on the transfer of abstract social units of purchasing power, known also as a pure credit system in Wicksell’s terminology (see Chapter 17). We will first discuss the possible existence and meaning of other forms of payments, from “near-credits” to “money,” in an economy with such a pure credit system. Thus, money will be defined in terms of credit, and a credit theory of money will be developed. The main drawback of this approach, which may also be its main advantage, is that it takes as its departure point not a real-payments system, but an abstract, ideal one.