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 4: The Social Origins of Money: The Case of Egypt

John F. Henry

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

Extract

1 John F. Henry T HERE ARE several ways to classify theories of money. For the purpose of this argument, the most telling distinction is between those theories that see money as a technical development, and those proposing that money is a social relationship. The former, generally following the thesis of Karl Menger (1892), promote the view that money is a thing, arising as a medium of exchange to reduce the transactions costs associated with inefficient barter arrangements. Such theories usually are associated with the ’metallists’, as it is normally some precious metal that arises to serve as the medium through which market exchange takes place (Goodhart, 1998). More important, this approach assumes an underlying equality among participants in the exchange relationship. As exchange must be voluntary in order for all parties to benefit, no coercive arrangements can exist that would negate freedom of choice. Those who see money as a social relationship stress the significance of money as a unit of account in which obligations are both created and extinguished. Money, then, represents a relation between those who claim these obligations and those who must service those claims. Exchange is, at best, of secondary importance in such accounts, as markets need not exist for money to evolve: while money may indeed serve as a medium of exchange, this is not a necessary function (Ingham, 1996). Such theories necessarily connote (or at least imply) some underlying inequality, as those who claim obligations must be in a superior position to those...

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