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 6: The Primacy of Trade Debts in the Development of Money

Geoffrey W. Gardiner

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

Extract

Geoffrey W. Gardiner I N THE opening sentences of his paper What is Money, Mitchell Innes reminded his readers that the accepted theory of political economy was that ‘under primitive conditions men live by barter,’ but ‘as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable . . . this commodity thus becomes a medium of exchange and measure of value.’ This same theory is the major theme of the first four chapters of Adam Smith’s The Wealth of Nations. Innes suggests that Smith’s explanation of the probable progression is not entirely sound. Innes is right, as this chapter endeavours to demonstrate; Smith’s perspective needs, as Innes stated, some correction. We accept, however, that Adam Smith is right in suggesting in the same chapters that human progress was rapidly advanced once specialisation of function was adopted, the ‘division of labour’ as he calls it. The very first paragraph of his book reads: The greatest improvement in the productive power of labour, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effect of the division of labour (Adam Smith, 1776). Having thus divided up the necessary tasks between them, humans need to exchange the results of their labours one with another, and barter is an obvious means of doing this. Smith does not pay much attention to the possibility that...

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