Credit and State Theories of Money

Credit and State Theories of Money

The Contributions of A. Mitchell Innes

Edited by L. Randall Wray

In 1913 and 1914, A. Mitchell Innes published a pair of articles that stand as two of the best pieces written in the twentieth century on the nature of money. Only recently rediscovered, these articles are reprinted and analyzed here for the first time.

Chapter 3: The Credit Theory of Money

A. Mitchell Innes

Subjects: economics and finance, economic psychology, history of economic thought


A. Mitchell Innes [151]* [The Banking Law Journal’s Editor’s Note. – So much has been written on the subject of ‘money’ that a scientific writer like Mr. Innes is often misunderstood. Many economists and college professors have differed with the statements made in his first paper, but it seems that none were able to disprove his position. Following this number there will appear a symposium of criticisms and replies to the first paper, and we cordially invite criticisms and replies to this his second paper.]1 T HE ARTICLE which appeared in the May, 1913, number of this JOURNAL under the title ‘What is Money?’ was a summary exposition of the Credit Theory of Money, as opposed to the Metallic Theory which has hitherto been held by nearly all historians and has formed the basis of the teaching of practically all economists on the subject of money. Up to the time of Adam Smith, not only was money identified with the precious metals, but it was popularly held that they formed the only real wealth; and though it must not be thought that the popular delusion was held by all serious thinkers, still, to Adam Smith belongs the credit of having finally and for all time established the principle that wealth does not reside in the precious metals. But when it came to the question of the nature of money, Adam Smith’s vision failed him, as the contradictory nature of his statements attests. It could not have been otherwise. Even...

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