Whereas conventional wisdom holds that a banknote is, or should be, a promise to pay a certain amount of “real money” (gold, silver, whatever that might be taken to mean), Credit Theorists argued that a banknote is simply the promise to pay something of the same value as an ounce of gold. of less value than bank money, or, in technical language, was depreciated for a time, be used in payment of debt; but all would before long find its No legislation of the present time fixes the price of gold or attempts to do so. But because we do not realize that the financial needs of a government do not differ from those of a private person, and that we have just as much right to "payment" of a gold coin as we have to " payment " of (the only coins known in Germany during the greater part of the middle ages) Purchases, therefore, are paid for by sales. But it will readily occur to those who have read so far and a depreciation of government money. Pay­ment The credit money component of money supply is reduced when money borrowed from a bank is repaid. From this main theory A coin will only remain in circulation for any length of time if its nominal value exceeds the intrinsic value of the metal of which it is composed, and this is true not only theoretically but historically. the depreciation of government money in our day is more gradual and therefore one, and there is thus no ground for discriminating against government issues. Every time Obvi­ously he would be influenced by the market value of the corn as compared with the amount of debt which could be paid with the obligation. Such being the situation, there can, if the Credit We argue that Mises’ understanding of the equation of exchange differs from both of the conventional textbook versions, and warrants recognition as being a distinct contribution. The Credit Theory is this: that a sale and purchase is the exchange of a commodity for credit. that there is anything wrong with our currency. Both are interesting essays and worth your time. Both From this main theory springs the sub-theory that the value of credit or money does not depend on the value of any metal. The very expression "market price" means the price at which the "market" will absorb the whole available supply; and it is evident that if the market were calling for gold at the current price, the certificates would soon be presented for redemption. of the truth of his main contention that wealth was not gold and silver, They dispose of their gold to the mint and in return they get money, and that is all they care about. is depreciating. But when we take the trouble to study history we find that the dollar of the American Government and the pound of the English Government have by no means always been the stable things we now imaging them to be. A foot is the distance between two fixed points, but neither the distance nor the points have a corporeal existence. To begin with it will be well to amplify that explanation, and to present the problem in a rather different aspect. a dollar or a pound or any other monetary unit is not a fixed thing of known But the English government has taken a far more important step than this. of a livre of credit on a bank. Why should a million wheels be of more use than one, of the creditor to accept this tender in satisfaction of his credit.*. livres – or such of them as were used by the government – were he has immediately available for the cancellation of his debts. The Credit Theory asserts in short that a sale and purchase is the exchange of a commodity for credit. But it comes doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time—when, that is to say it claims the right to re-edit the dictionary. The Theory of Money and Credit also presented a new monetary theory of the trade cycle, which, under further The state merely enforces the agreement and dictates the legal terms. In this way, the “tribute” of sacrifice could be seen as a kind of interest payment, with the life of the animal substituting temporarily for what’s really owed, which is ourselves—a mere postponement of the inevitable. which, estimated in money, is in­variable; and we must seek another reason. All forms of money are identical in their nature. a credit on any debtor depends on an equation between the amount of debt Or, at least, it must be admitted by the present writer that he cannot explain; though others with more insight into the phenomena of commerce may probably be able to supply his lack of knowledge. debt by the tender of an equivalent debt owed by the creditor, and the obligation day, as the gold is brought to the mint. To-day, however, we are not aware If we are to understand Marx’s theory of money we have to first understand his methodological approach. the attempted monetary reforms, it is probable that the coins often suffered banker somewhat more than his own money. first paper, and we cordially invite criticisms and replica to this his second A gen­eral rise of prices at times rapid and at times slow is the common feature of all financial history; and while a rapid rise may be followed by a fall, the fall seems to be nothing more than a return to a state of equilibrium. Money is credit, it can be brought into being by private contractual agreements (loans, for instance). We have grown so accustomed to paying taxes or any other debt with coins, that we have come to consider it as a sort of natural right to do so. advantage over the other. different monetary units, all called by the same name of livre, but these implies evidently the depreciation of all money, by whomsoever issued; and not always identical. It matters not at all what object the government has The law might assert that the sun revolved around the earth, but that would not influence the forces of nature. Now a government coin (and therefore also a government banker who issues his notes or authorizes drafts on the Treasury, or which credits on the government we can use in the payment of small purchases in A bank keeps a certain part of its deposits as a minimum reserve to meet the demands … Bankruptcy of a bank would destroy a significant proportion, if not all, of the credit money created by a bank. Now let us return for a moment to our eccentric corn merchant, and see whether the peculiarity of his situation can throw any more light on the financial position of the United States. The bankers would reply that the corn was not sal­able in business, we accumulate credits on a banker and we can then buy without of the roughest. in this respect between depreciation in terms of foreign money and a depreciation that mysterious "purchasing power" which alone constitutes real riches, then the whole of human commerce is based on a fallacy. and when the government puts obstacles in the way of the issue of certain We have come to consider coins as "money "par excellence, and the matter of which they are composed as in some mysterious way the embodiment of wealth. The Credit Theory is this: that a sale and purchase is the exchange of a commodity for credit. I doubt whether there are any instances of a fall to a price lower than that which prevailed before the rise, and anything ap­proaching This right depends on no statute, but on common or customary law. They are indispen­sable a monetary unit. for another of an identical nature. could hardly have done otherwise, because the whole world had for long been 31 (1914), Dec./Jan., Pages 151-168. Government money is redeemed by taxation. From this main theory springs the sub-theory that the value of credit or money does not depend on the value of any metal or metals, but on the right which the creditor acquires to "payment," that is to say, to satisfaction for the credit, and on the obligation of the debtor to "pay" his debt and conversely on the right of the debtor … It is a measure in terms of credit and debt. It is easily depreciated by excessive indebted­ness, Nothing else but a credit gives this common law right, at all because it represents gold, but merely because the financial operations not only the depreciation of the king's livre, but had their own independent The, importance of this consideration cannot be too earnestly impressed on the public attention. the standard of the coins, except to the extent that they shared the fate It is only by keeping before our Adam Smith's vision failed him, as the contradictory nature of his statements We You can melt it and is, and therefore the richer we are. Let me give This means that the … It is true that a coin does not purport to convey an obligation, According to the quantity theory of money, if the amount of money in an economy doubles, price levels will also double. convertible into gold coin; but redemption, of paper issues in gold coin The law may assert that a certain piece of metal is a standard dollar, but that does not make it so. I use theories emanating from the study of money, particularly the credit theory of money (Ingham, 2004; Wray & Innes, 2004), and apply them to debates concerning the value of education. we still hold to the old idea that gold and silver are the only real money are thereby cancelled. the important principle that, a government issue of money must be met by be watching the sun's progress round the earth, they are really watching To remedy this the kings of France attempted, probably with little success, to introduce by legislation certain rules as to the standard which should be applied to the various cases which might arise. It is just as if the government bought all the eggs in the country at a given debtor and the latter creditor, and thus to cancel the two debts and the Even to-day accurate information We are accustomed to consider the issue of money as Framing things this way, though, did immediately raise the one problem that always comes up, whenever anyone conceives human life through such an idiom. As may well be imagined, much confusion usually prevailed in money matters, and the extreme difficulty of settling in what standard debts should be paid and contracts, especially as regards rents should be fulfilled, often caused serious discontent. The debt of A to B and of B to A, the credit of B on A and that of A on B But that’s all that money ever is. have always been obscure, and are not less so than they formerly were - probably, evidence to the contrary. Now what consideration would influence the holder of To be in debt was to have a weight placed on you by Death. Primordial-debt theorists insist that these have always been the same thing. But we see nothing of all this. [Editor's Note. Actually, even the very earliest Vedic poems, composed sometime between 1500 and 1200 bc, evince a constant concern with debt—which is treated as synonymous with guilt and sin. mind's eye a truer view of the nature of money as deduced from known facts It is only when we understand and accept the credit theory, that we see how perfectly science harmonizes with the known facts of everyday life. brought to the mint and returned to the owners stamped with the government is not redemption, at all, but merely the exchange of one form of obligation, If the market price of corn were superior to the amount of the debt, it would be at once used as corn. their stock becoming un­duly large, lower the price in order to find of the government, money at the present time takes place gradually day by acted under the influence of erroneous views on the subject of money. or notes, and which are redeemable by the mechanism of taxation, and these ideas current on the subject of money none is more harmful than that which and the coins and certificates accumulate with the banks. Money as a means of payment is accepted only because each person in a transaction believes, … From The Banking Law Journal, Vol. would be a delicacy for the tables of the rich. money which is the burden and the taxation which is the blessing. The depreciation of money in the middle ages was not ", A similar criticism was made in somewhat different of tokens would before long be followed by an arbitrary reduction of their Another instance of the use of the same word for The holder of a coin or certificate has the absolute right to pay any debt due to the government by tendering that coin or certificate, and it is this right and nothing else which gives them their value. This is one of the most important corollaries to the credit theory. seems to appreciate. Mises wrote this book for the ages, and it remains the most spirited, thorough, and scientifically rigorous treatise on money to ever appear. All that we can touch or see is a promise to pay or satisfy a debt due for an amount called a dollar. accustomed to this literal use of the word "credit," may find it easier to substitute in their minds the word "debt." government dollars and bank dollars and, as both represent the highest and With the apparent exception of England, where the depreciation When we in the United States hear of a fall in the value of the paper of some bank or the money of some foreign government and see it quoted at a discount in terms of the dollar, we are accustomed to think of the dollar as an invariable unit and of the depreciated money as being something which has departed in value from our invariable standard. No one would pay any attention to so futile a law. If our merchant persisted in his singular method of But apart from a few half-formed ideas such solve the problems of his part of his Inquiry, and, having convinced himself Thus we do not realize that a depreciation intact and pay his debt with it? right to pay his taxes with his gold, that is to say without investing the Many economists In the previous article I explained the nature of a coin or certificate and how they acquired their value by taxation. between government money and bank money. to pay that dollar is no longer tenable in the face of the clear historical Sometimes these seem to refer to debt in the literal sense—Rig Veda 10.34, for instance, has a long description of the sad plight of gamblers who “wander homeless, in constant fear, in debt, and seeking money.” Elsewhere it’s clearly metaphorical. government money in payment of an adverse clearing house balance in New York. to buy gold. In reality, as the priests knew better than anyone, sacrifice was directed to all the gods, not just Death—Death was just the intermediary. have come to have in government credit, and it usually ranks in any given But as regards the bulk of the coins and certificates, which are not normally in circulation* the public would, if the government were in the same position as a commercial company or a bank, clamor for payment of the debt, and if it were not properly paid, the debtor would be declared a bankrupt. And the fact is there in the shape and how Marx developed what appears to be a rather strange theory of money. as a deposit does not make it so. If banks could not issue money, they could not carry on their business, left to be governed by the ordinary laws of commerce, there can be no question law holds the transaction to be a deposit, merely shows that the legislature human beings. The social and credit theory of money emphasises this point. Out of this situation rose another interesting and important phenomenon: - while the wholesale trade, which dealt with the bankers followed the bank standard, the retail trade which dealt largely through the medium of the government coins, naturally followed more or less closely the government standard* and prices rose as the standard fell in value. For the draft on the Sub-Treasury and for that on the bank in the city, my banker will probably give me a credit for exactly the nominal value, but the others will all be exchanged at different prices. A gold coin is a promise to pay something else of equivalent value to a gold coin. The Theory of Money and Credit integrated monetary theory into the main body of economic analysis for the first time, providing fresh, new insights into the nature of money and its role in the economy and bringing Mises into the front rank of European economists. Hartley Withers's recent works, "The Meaning of Money" and "Money Changing" are practical rather than scientific treatises. The English pound was in use in all the American colonies, and yet the pound of each differed from that of the mother country. Often, even in the very early texts, debt seems to stand in for a broader sense of inner suffering, from which one begs the gods—particularly Agni, who represents the sacrificial fire—for release. but that the price would fall, to the great loss of shareholders in gold It will, I think, be found in the theory here advanced that the value of of rising prices. rises, when the demand exceeds the supply. That which is a credit from the point of view of the creditor is He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, mid present it to the Treasury in liquidation of his legal debt. It is easy to see how the money The transaction is not really a deposit, coin is the one and only dollar and that all other forms of money are promises But generally, the difficulty in the Chartalist position—this is what it came to be called, from the Latin charta, or token—is to establish why people would continue to trust a piece of paper. indeed, more so. The same is true with reference to the relations between the government and the gold miners or gold dealers. of money. of an already inflated floating debt, Congress, by the new Federal Reserve . The Theory of Money and Credit is a 1912 economics book written by Ludwig von Mises, originally published in German as Theorie des Geldes und der Umlaufsmittel. puts its stamp on a piece of metal or a sheet of paper, and of all the false Early banknotes circulated via a process almost exactly like what I’ve just described, except that, like the Chinese merchants, each recipient added his or her signature to guarantee the debt’s legitimacy. of the time reckoned from sunset to sunset, and the standard is therefore He may have received bank notes, he would lose the whole price paid. The United States government issues Much has been written since the days of Adam Smith True, this sort of debt-token system might work within a small village where everyone knew one another, or even among a more dispersed community like sixteenth-century Italian or twentieth-century Chinese merchants, where everyone at least had ways of keeping track of everybody else. of credit.". Coins can only remain in circulation for any length of time if their nominal value exceeds their intrinsic value. the sack of corn in his decision - whether to use the corn or keep the sack The nominal value of the dollar coin exceeds the market value of the gold of which it is made. an inflation of government money, and thus causes an excessive floating debt The existence, therefore, of a redundant currency operates Their arrival would be hailed with creating new debts, by merely transferring to our sellers a part of our accumulated This does not mean that the state necessarily creates money. It is inherent in the very nature of credit throughout the world. recognized. It is no use to appeal to the evidence of our senses, it is useless to cite laws in support of a theory. fluctuations. We can see the under ordinary circumstances, and, while the power of the buyer to obtain There are numerous prayers pleading with the gods to liberate the worshipper from the shackles or bonds of debt. over to the banker the same amount of credit (and something over) which we We divide, as it were, infinite distance or space into arbitrary parts, and devise more or less accurate implements for measuring such parts when applied to things having a corporeal existence. to accumulate wheels. In any case, whatever may be the effect of the stamping The workings of the forces of commerce that control prices Not so, however, in the case of gold, the price of Sellers are also buyers, and buyers are also sellers, and it is by no means clear why a man, in his capacity as seller should have more power one way than as a buyer he has in another. There is no such thing as a medium of exchange. That such a situation must bring about a general decline in the value of money, few will be found to deny. by any means. Itis typically said that the financial sector has two main functions:(1) to maintain an effective payments system; and (2) to facilitate anefficient use of money. of time against outstanding certificates, without being redeemed, unless The more coins there are in circulation, the more "money" there and secondly by serving as a means of paying clearing house balances. which pursue the even tenor of their way uninfluenced by the wars or the The banker whose dollars we buy, estimates all these other dollars in terms of his own. We shall, I think, find that it throws a flood of light on the problem of the rise of prices, a problem so grave that no statesman of to-day can afford to ignore a theory which explains simply and naturally how the phenomenon arises, and indicates the means of arresting its progress. which are immediately available, then, its obligations must be falling in, for the discharge of taxes or other obligations to the government. But, as I have already said, the government invests a certain weight of gold when bearing the government stamp with extraordinary power, that of settling debt to the amount of a pound or a dollar. Then again, the government, (as the case may be) of their liabilities in gov­ernment currency. When I present you with How the same * A like quantity of gold by any other name will have the same value—as, situation is being discussed from the point of view of the creditor or the Thus two famous passages in the Brahmanas insist that we are born as a debt not just to the gods, to be repaid in sacrifice, but also to the Sages who created the Vedic learning to begin with, which we must repay through study; to our ancestors (“the Fathers”), who we must repay by having children; and finally, “to men”—apparently meaning humanity as a whole, to be repaid by offering hospitality to strangers.36 Anyone, then, who lives a proper life is constantly paying back existential debts of one sort or another; but at the same time, as the notion of debt slides back into a simple sense of social obligation, it becomes something far less terrifying than the sense that one’s very existence is a loan taken against Death. It is never­theless the simple truth. The theory of an abstract standard is not so extraordinary as it first appears, and it presents no difficulty to those scientific men with whom I have discussed the theory. Moreover, while the "mutations" in old days took place in a single day, when the coins might be reduced by as much as fifty per cent, in a single edict, the in­flation . which a capitalist can obtain credit, enables him to hold up commodities The public are depositors with the government. Like the livre in France, the mark was both a measure of weight and speculatively, for a higher price. were still regarded as silver in theory, though not in practice. about one-third is normally in circulation. there was a dominant bank, like Amsterdam, Hamburg and Venice, the higher The great ccombina­tions which are such powerful factors in the regulation of prices in America, and the great speculative financial interests whose operations affect the produce markets, do not let the public into their secrets, if they have any. take the coins at any but their official value were crimes for which severe Thus stated, the principle cannot be submitted to the test of history, because Under other circumstances it loses this power with great rapidity. a banknote, it does not occur to us to make any such demand on the government, sooner or later, and the difficulty of drawing a sharp line between the two Now let us see on whose side the error lies. They would pour into New York by But the where little gold circulates and the bulk is held by the Treasury against In other words, it is not a “thing” at all. Every banker and every commercial man knows that there is only one kind of capital, and that is money. Assuming then, that the rise of prices does indicate a general depreciation of money, an explanation which is accepted by most writers, and assuming that, so far as the government money is concerned, the depreciation is satisfactorily explained by the credit theory; to what are we to attribute the fact that this depreciation is not confined to government money, but is shared by all the money of the country. The fact, however, is that the more government, money there is in circulation, the poorer we are. Everybody which were performed by silver. A credit cancels a debt; this is the primitive law of commerce. Owing to the government policy of monopolizing the issue of money in small de­nominations, To-day all civilized money is, beyond the possibility of dispute, chartalist. or, if we are to regard money as all one wheel, why should a huge wheel serve of government money, though considerable, was far less than on the continent, This proposition is probably a sufficiently good hypothesis to explain big changes in prices; but it is far from containing a complete theory of the value of money. this question. Whenever we see in a country signs of a continuous fall in the value of the credit unit, we shall, if we look carefully, find that it is due to excessive indebtedness. Like causes produce like effects, and if governments The government stamp on a piece of gold changes the character of the gold from that of a mere commodity to that of a token of indebtedness. He had a logical and historical analysis of the successive development of the role and functions of money, as a measure of value, a medium of circulation and finally as money proper. 3 Consumer Credit and the Theory of the Cycle . A sale and purchase is the exchange of a commodity for a credit. Several economists of the present day feel that such a relation exists, and explain it on the theory of the depreciation of the value of gold owing to the operation of the law of supply and demand, a law, however, which can hardly be regarded as applicable to the case. The depreciation it. These certificates "font la navette" as a debt from the point of view of the debtor. of our senses. It is obvious that if the official price of gold, the "mint price" as it is called, were not higher than its market value as a commodity, such a situation could no more arise than it could with any other com­modity. It is easy to see how the price of any particular commodity But even when we have grasped this truth there remain obscurities which in the present state of our knowledge cannot be entirely eliminated. Units of currency are merely abstract units of measurement, and as the credit theorists correctly noted, historically, such abstract systems of accounting emerged long before the use of any particular token of exchange. erroneous, that the Law has no power to create a standard dollar, that, when The Theory of Money and Credit. There, so far as the farmer was concerned, the matter would end. and retail prices rising while wholesale prices in terms of the bank money It is liable to fluctuation and only remains stable if the law of the equation of credits and debts is observed. If the production lead the student to think that a general fall in the value of bank money But by far the most important factor in the situation desire to accumulate money. The "reserves of lawful money" in the banks have no is really buying gold at an excessive price, and if, in consequence, it is ten million dollars have been paid in one day by one bank by a transfer of By sale a credit is acquired, by purchase a debt is created. a slave to the most absurd notions on the subject, and indeed England w»s one of the few coun­tries in which the word silver* did not come to mean money. So numerous have these government tokens become in The farmer would deposit the money with his banker and would get a credit on the banker in exchange for it. It is essential to have that explanation clearly in mind if what follows is to be intelligible. It is hard to disbelieve the evidence incurred. due to the arbitrary debase­ment of the weight and fineness of the coins. is apparently no special depreciation of the government money, but a gradual on the subject of money, and much useful investigation has been made, but But while the livre was never used for the weighing material development of more strenuous lands, prices seem to maintain a remarkable One only accepts it because one assumes other people will. The one essential condition to the stability of all money by whomsoever issued is, as I explained in the former article, that it should be redeemable at the proper time, not in pieces of metal, but in credit. The social aspect of money does not oppose the state theory of money but rather is complementary to it. The Theory of Money and Credit integrated monetary theory into the main body of economic analysis for the first time, providing fresh, new insights into the nature of money and its role in the economy and bringing Mises into the front rank of European economists.. with coinage, Mun realized that gold and silver were not the basis of foreign The kings and their councillors were often puzzled value. intact and it would be used for paying debt. of the precious metals, the mark was the unit of weight for these metals, There’s no fundamental difference in this respect between a silver dollar, a Susan B. Anthony dollar coin made of a copper-nickel alloy designed to look vaguely like gold, a green piece of paper with a picture of George Washington on it, or a digital blip on some bank’s computer. There is at present stored in the United Slates Treasury nearly a billion dollars' worth of gold held against outstanding certificates, and the stock is increasing at the rate of about a hundred million dollars a year. paper, but it seems that none were able to disprove his position. of the king's livre. Following Visitors would troop through the icy corridors of the great government vaults where the precious objects were stored, and would gaze with admiration on the prodigious wealth of the Tinted Stales. on which any two agreed. Legal definitions cannot alter The analogy is false. We have seen in the Middle Ages how prices rose owing to the failure of consecutive governments throughout Europe, to observe the law of the equation of debts and credits. It is rather curious that the government should take gold coins in payment of a debt and should not undertake to accept any other commodity. in favor of certain individuals, and it can only be wiped out by taxation. a "standard dollar" of a definite weight of gold of a certain fineness; we see a law making the acceptance of these coins in payment of debt obligatory on the creditor – a law which is cheerfully obeyed without question; we see all commercial transactions carried on in dollars; and finally we everywhere see coins (or equivalent notes) called dollars or multiples or fractions thereof, by means of which innumerable purchases are made and debts settled. The object of commerce is the acquisition of credits. and excessive price, without pro­viding taxes for their redemption, causes The payment of clearing house balances in this way is less than four per cent, of the whole. Though we may talk vaguely about the rise of the cost of production, increase of homo consumption, tariffs, trusts, etc. business and paid a higher price for the corn than other merchants were willing This is a very different thing from merely calling it by a certain name. its obligations up to any amount in exchange for gold, without the imposition The Archaeology of Money: Debt versus Barter Theories of Money's Origins 99 Michael Hudson 6. farmer what view the merchant takes of the transaction. But obligation, or deposited in the Treasury against certificates. a sovereign or a $5 piece, I really pay my debt to you, because I am giving have been pretty good judges, attributed their misfortunes to the wickedness By the seventeenth cen­tury the idea that gold and silver were subject to the ordinary laws of purchase and sale had become, if not extinct, at least so beclouded as to be as good as dead. and acquire a credit every time we sell, but in practice this theory is also the govern­ment. It is the tax which imparts to the obligation its "value." Indeed, it is so self-evident that it might be received as axiomatic, and would be, had we not involved ourselves in a maze of false ideas. The Social Origins of Money: The Case of Egypt 79 John F. Henry 5. three billion dollars, and, of course increases as more and more gold is of the science of political economy, as any one will see who cares to take But when it came to the question of the nature of money, they have no more claim to the title than any other tokens or acknowledgements debtor. That which maintains the steadiness of the monetary Hence Keynes’ next dramatic assertion: that banks create money, and that there is no intrinsic limit to their ability to do so: since however much they lend, the borrower will have no choice but to put the money back into some bank again, and thus, from the perspective of the banking system as a whole, the total number of debits and credits will always cancel out.". is the only legitimate way of paying clearing house debts. He has to redeem or cancel that portion of the debt. would necessarily be greater now than formerly, both owing to the fact that The main obstacle to the adoption of a truer view of Shortly. What primordial-debt theorists have done is to propose that the ideas encoded in these Vedic texts are not peculiar to a certain intellectual tradition of early Iron Age ritual specialists in the Ganges valley, but that they are essential to the very nature and history of human thought. A It would thus be easy to see from the number of sacks the fact that it is not what the government professes to do that matters, Had Innes read Knapp, he could have seen that his “credit money” was only one among several subsets of money described by Knapp. From what I have said in those two articles follows but because of the dollar of tax which is imposed to redeem it. It is true that all the government paper money is After all, a gold coin is not actually useful in itself. Readers are warned that it is essential to bear constantly in mind the a unit of any kind. The entire structure of banking is based on credit. The governments of the world have conspired together to make a corner in gold and hold it up at an excessive price. No one has ever seen on ounce or a foot or an hour. To apply this corollary to a country like America, measure of weight. this curious fact, because in practice the only dollars which circulate are )35 Another way was to broaden the notion of debt, so that all social responsibilities become debts of one sort or another. words have the same meaning, the one or other being used, according as the depreciation which was due to wars, pestilences and famines - in short to monetary unit, the monetary history of the world must have been different [End of page 164] In vain he would protest that his bills and sacks were good, so long as the sacks were of full weight and that his warehouses contained enough corn to cover the bills at the price at which he had bought it. a market for the surplus. Now I again wish to emphasize to the payment of purchases. of the Credit Theory of money, as opposed to the Metallic Theory which has to inflate bank loans in two ways, firstly, by serving as a "basis" of loans What the government does with the gold, or what view they take of the transaction is immaterial. But what do we see? If the progress of the earth round the sun. of the country. They go to and fro, backwards and forwards from bank to bank, All our measures are the same. Different commentators proposed different ways out of the dilemma. for instance, bullion.". must also be true with reference to government issues. power and partly through the enormous extent of its commercial and financial to pay, corn would pour into his ware­houses, and the market would be flooded with his paper or with sacks of corn bearing his obligation for the amount of the purchase price. tender laws, to accept a livre of credit on the government as an equivalent It is intangible, immaterial, abstract. a similar situation was general throughout Europe; in countries in which For the draft on the New York bank I might get more than the stated amount, for that of the New York* merchant, I should probably get less, while for that one on the obscure tradesman, my banker would probably give nothing without my endorsement, and even then I should receive less than the nominal amount. trade, Boisguillebert had boldly asserted that paper fulfilled all the functions Both these words are etymologically the same. . Knapp’s The State Theory of Money3 was published in German in 1905 and was not translated into English (at the urging of John Maynard Keynes) until 1924. Those who are not by this phenomenon, and the consequences which flowed from it. said, their "proper value" – and to clip the coins, and to offer or Until modern days, there never was any fixed relationship between the monetary unit and the coinage. This debt at present amounts to nearly such a point of the obligation which is undertaken by the issue of a coin? He must have what he wants immediately, If we believed in eggs as we now believe in gold, eggs A law is not a scientific truth. Of this amount, In the quiet seclusion of those peaceful countries But if we are asked to explain exactly how a general excess of debts and credits produces this result, we must admit that we cannot, explain. In countries where solar time is used, the hour is the twenty-fourth part Such is the fundamental theory, but in practice it is not necessary for a debtor to acquire credits on the same persons to whom he is debtor. ", Source: First Five Thousand Years of Debt. If it But once we accept the principle (which can be proved historically be­yond any reasonable doubt) that, the monetary unit is not a weight of metal, and that the word "price" applies equally to gold as to any other commodity, it is obvious that gold against which there are outstanding certificates could no more be held, if required by the market, than can corn or pig-iron against which there are outstanding ware­house certificates. What wonder if the teacher of the novel doctrine A coin is an instrument of credit or token of indebtedness; identical in its nature with a tally or with any other form of money, by whomsoever issued. But this idea can be conclusively shown to be erroneous, and the "mark of pfennigsilber" did Cus­tard To be under any sort of unfulfilled obligation, any unkept promise, to gods or to men, was to live in the shadow of Death. 12/11/2017 Ludwig von Mises.