Note: In chapter 2 and 3, I have used the original pagination of Innes, and excluded the new pagination of Wray

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Barnet, Corelli (2001), The Verdict of Peace, London:

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Dercksen, J. G., ed., (1999), Trade and Finance in Ancient

Gibson, A. H. (1923), 'The future course of high class

investment values,' The Bankers Magazine, January, 15-34.

Gilbert, K. R. (1965), The Portsmouth Block-making

Hallo, William W. (2004), 'Bookkeeping in the 21st Century

BC’ in Michael Hudson and Cornelia Wunsch, eds, Creating Economic Order: Record-keeping Standard and the Development of Accounting in the Ancient Near East, Bethesda, Md.: CDL Press.

Hudson, Michael and Marc Van De Mieroop, eds (2002),

Ifrah, Georges (1994), The Universal History of Numbers

(English edition 1998), London: The Harvill Press.
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Ingham, Geoffrey (2004), The Nature of Money, Oxford:

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Innes, A. Mitchell (1913), 'What is money?', Banking Law

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Innes, A. Mitchell (1914), 'The credit theory of money,'

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Keynes, J. M. (1930), The Treatise on Money, London:

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Assyrian Trade,' in J. G. Dercksen, ed., Trade and Finance in Ancient Mesopotamia, (MOS Studies 1) Leiden: pp. 55-83.

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7. The Emergence of Capitalist Credit Money

Geoffrey Ingham

INTRODUCTION: ECONOMICS AND HISTORY; MONEY AND CREDIT

IN THE late nineteenth and early twentieth centuries, academic economics took on the conceptual and methodological complexion by which it is clearly recognizable today. During the famous method­ological conflict (Methodenstreii) at this time, economics separated itself from other social and historical sciences and put forward its imperialist claim to provide a superior explanation of all the phenomena customarily dealt with by its academic kin (Swedberg 1987; Machlup 1978; Schumpeter 1994 [1954]; Ingham 1996a). Analytical economics claimed to be universally valid. The 'laws' of supply and demand, for example, were considered to be equally applicable to the ancient economies and primitive societies as they were to the modern world. Historical change in general and the advance of the 'wealth of nations', in particular, were seen as the result of increasing efficiency in the conduct of human economic affairs. Throughout the nineteenth century it was asserted with an increasing confidence that the twin universal processes of the division of labour and market exchange, together with an understanding and application of the laws that governed their development, had brought about these enormous transformations.

The proponents of this new 'high theory' in economics looked upon the analytical simplicity of their models as evidence of their sophistication. The more abstractly and mathematically they expressed their theorems, the more scientifically prestigious they could claim to be. The relationship of the 'pure' theory of exchange to economic reality, they argued, was of exactly the same kind as of the natural sciences to nature - that is to say, for example, between atomic structure and landscape. Modern economics did not attempt to describe the modern economic system and its historical evolution. Rather, it was claimed that

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all its activities could be explained in terms of concepts and theories of the highest level of generality - such as marginal utility, supply and demand and so on.

Elements of the general analytical and methodological framework from which these 'laws' were derived were, however, paradoxical in relation to actual contemporary economic developments. The increasingly abstract character of academic economics was based on a conception of a simple barter economy in which specialisation and trade maximised welfare. Here, money was merely a 'neutral' medium of exchange - or 'veil' - over the underlying processes of exchange. Notwithstanding their analytical sophistication, these models of the 'real' economy were the direct descendants of Aristotle's 'natural' economy, as this had been interpreted and developed over the centuries (Schumpeter 1994 [1954]). His venerable theory of money as a medium of exchange was developed and formalised mathematically. Its existence was analytically acknowledged and incorporated into the equations by its conceptualisation as one of the commodities in the barter economy against which other commodities were valued. This was accomplished at various levels of abstraction - from Walras's abstract notion of the numeraire as a standard commodity to Menger's conjectural history of the origin of money out of the most tradable commodity on a barter economy.¹ The heterodox Keynesian economist Minsky scornfully, but accurately, referred to this approach as the economics of the 'village fair' (Minsky 1982). But, 'capitalist' economies were based upon complex systems of production in large enterprises that increasingly relied on external money capital in the form of stocks, bonds and bank credit.

Nevertheless, the science of economics could present, within its own framework, a well-reasoned argument for the efficacy of the gold standard as the foundation for a stable monetary system. In the period immediately before the First World War, most opinion, professional and lay, would have agreed with Ricardo's statement that '[t]here can be no unerring measure of either length, of weight, of time or of value unless there be some object in nature to which the standard itself can be referred' (David Ricardo in P. Sraffa (ed.) (1951-5; emphasis added.) The natural substance, gold, as a commodity with a value-in-exchange, was seen as an inviolable foundation for the standard value of 'money proper' upon which, if prudence were exercised, the modern credit system could be safely constructed.²

One by one, the major economic powers went onto the gold standard and, as an almost inevitable consequence, enhanced the powers of their central bank (see Helleiner 1999). Of these, the United States was the last major power to adopt the system with addition of the Federal Reserve to
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the gold standard in 1913. Almost at this precise moment, Innes's two iconoclastic articles appeared in a New York monthly - The Banking Law Journal, (Innes 1913, 1914). Referring to the commodity theory of money and standard of value, Mitchell Innes found it deeply puzzling that 'it may be said without exaggeration that no scientific theory has ever been put forward which was more completely lacking in foundation' (1914: p. 383). At the apogee of the gold standard, he insisted that 'there was never such a thing as a metallic standard of value' (p. 379). In view of the consolidation of both the international gold standard by the world's leading powers and the intellectual legitimation given to it by the new economic orthodoxy, his views were, not surprisingly, consigned to an undeserved oblivion. However, as the result of the recent strong revival of interest in heterodox theories of money, his work has been rediscovered (On this revival, see, for example, Wray 1990; Goodhart 1998; Ingham 1996b; 2000; Smithin 2000; Wray 1998; Bell 2001.)