Credit Theory of Money

Gavin Mitchell-Innes was an early thinker in the area, got support mostly in US and Germany (two up and coming powers at the time, not in Britain, the power at the time. This feels significant). Another name is Chartalism (from latin charta, meaning “token”).

Theory i sthat money is not a commodity but an accounting tool. “For a Credit Theorist can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter.”

“Historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.”

Money matters because it’s an IOU. Conventional wisdom says banknote should be a promise to pay a certain amount of real money (gold/whatever), Credit Theory says banknote is just a promise to pay *something* of a certain value.

“Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one’s head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value.”

This theory allows for the trading of debts. I give you something, you give me an IOU, I can give that IOU to a third party for something else. They can then give the IOU to someone else, etc, etc. All that matters for the IOU to have value is people’s faith that the original issuer is good for it.

“In this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings.”

pg 46-7