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

'CREDIT' AND CREDIT MONEY

There would also appear to be the need for clarification of Innes's conception of credit money. If all forms of money are essentially 'credit', why does Innes find it necessary to argue that bilaterally contracted credit relations have actually been more important, contrary to most established opinion, than coinage itself? Are the distinctions between the different forms of money of any significance? Is the token credit in the form of coin the same as the tally stick or bill of exchange? Notwithstanding his generic identification of money with money of account, Keynes, for example, maintained the conventional distinction between 'Money-Proper' and 'Acknowledgements of Debt' in his classification of 'the schemes and forms' of money (Keynes 1930: 9). In his understandable eagerness to establish the credit theory of money, Innes, perhaps missed the significance of some of the historical changes in the form money has taken.

The attachment of the German 'historical school' to the credit theory of money was only one, albeit important, aspect of their feud with the
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economic theorists. More generally, as I have already pointed out, the historians and sociologists rejected the claim that the laws of economics were universally applicable. They insisted on the historical specificity of capitalism as a distinct and unique form of economy that had developed in Western Europe. The issue of whether there was any fundamental difference between, on the one hand, the ancient economies of Babylon and Egypt, those of classical Greece and Rome and those of the modern world occupied a central place in the dispute. Could the ancient and modern periods be understood in terms of the same universal laws of economics? Most importantly, did Aristotle's commodity exchange theory of money provide an adequate understanding of modern capitalism's monetary system? As we shall see, in addition to their rejection of the theory of money as a medium of exchange, leading members of the 'historical school' also argued that the 'banks' of the ancient and classical economies were 'primitive'. That is to say, they were of only marginal significance in the ancient and classical economies, and, furthermore, were involved, in the main, with 'pre-capitalist activities' such as money changing.¹³

It should be stressed that these writers were not concerned with the material substance of the form of money - that is to say, with Menger's problem of the substitution of 'worthless' paper for precious metal. Rather, they were pointing to the historically singular development of what Post-Keynesian economists later were to call the 'endogenous' creation of money - that is to say, by the creation of money deposits through bank lending and transferable debt.

Innes's position on these issues in the history of monetary thought appears to be rather different. His argument that money is essentially an abstract measure of value and that all money is credit are much the same as those of his unacknowledged contemporaries in the heterodox camp. But, he is at odds with them in not identifying the character of capitalism as a 'monetary production economy', based in the availability of an elastic supply of credit money. In this respect, Innes's argument is logically consistent: as all money generically is credit, the issue of capitalist credit money is not significant. However, I shall suggest that the manner in which he universalises the existence of credit qua money obscures the nature of the causal role played by an historically specific form of credit in the long historical transition from Babylon to modern capitalism.

Innes grounds his conception of the universal character of money in a 'primitive law of commerce'; that is to say, 'the constant creation of credits and debts and their extinction by being cancelled against one another' (1913: p. 393). Notwithstanding the scorn he pours on commodity theory for its axioms, Innes is in fact guilty of a similar
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offence. On one level, his explanation simply involves the substitution of one universal 'law' for another. The 'primitive law of commerce' replaces Adam Smith's law of 'the tendency to truck barter and exchange'. However, there is no such universal 'law' - in either case. Nor can the 'sanctity of an obligation' based on the 'antiquity of the law of debt' be taken as a sociological universal (Innes 1913: p. 391). In his references to 'obligations' and 'promises', rather than media of exchange, Innes quite properly focusses attention on the fact that money is actually constituted by social relations (Ingham 1996a). But he does not appear fully to appreciate that the social and political foundations of credit relations -that is of all monetary relations, and their historical variation in the development of different forms of money, require an explanation.

This approach also prevented Innes from making important distinctions between different forms of credit relation. As I shall argue in the following section on the development of capitalist money, it is important to distinguish between the multilateral book clearance of debt and the actual creation of money through bank lending, in the form of transferable debt. Similarly, Innes does not make an explicit distinction between the existence of bilateral debt, acknowledged, for example, by the two pieces of the tally stick, and the transferability of such a promise to pay to a third party. Whilst we may agree with Innes that all money is credit (or debt), it does not follow that the converse is true. Not all credit (or debt) is money. Innes tends to assume the existence of a social system of banking intermediaries in which interpersonal credits and debits can be cleared and which is able to issue credit money in the form of impersonal transferable circulating debt (Innes 1913: p. 392).¹⁴

It is the extensive transferability of debt and the creation of a hierarchy of acceptability that was crucially important in the development of the form of (circulating) credit money. As we shall see, these institutions were slowly and painstakingly constructed. This was a complex process that involved social and political transformation. It cannot simply be seen as an expression of the 'primitive law of commerce'. Innes tends to oversimplify the complex social and political changes that have structured the evolution of money since Hammurabi's day. In a similar analytical manner to his opponents in economic orthodoxy, Innes fails to acknowledge the historical specificity of capitalist credit money.