Money Has No Value

This means that in this first chapter it is necessary to provide an overview of the history of theories of money. Most heterodox accounts of money attempt this, but they fail to give a rigorous, subtle, or deep sense of that history because they lump everything into the categories of orthodox or not orthodox. Instead, I set out here to create a "matrix" of money theories based on answers to three basic questions that any theory of money most address: 1) real or monetary analysis, 2) commodity or claim, and 3) quantity theorem, yes or no. Working through these choices I produce a matrix of 8 different money theories, giving the reader a more fine-grained accounting of the history of theories of money than has heretofore been available.

Chapter Two: Money is Credit

This chapter is the cornerstone of the book, as it makes the primary case for the basic credit theory of money. It does this by returning to Mitchell Innes's crucial work from the early twentieth century, a source that has already been identified by the leading lights of money theory today (see chapter three), but which I argue has never been fully appreciated for the depth of its insights and the radicality of its overall implications.

Starting with Innes, I argue for a fundamental rethinking of the very idea of economic exchange. Both classical political economy and the neoclassical paradigm of economics conceptual "exchange" - the fundamental economic activity - as the swapping of one commodity for another. I argue instead that in a capitalist social order we must grasp economic exchange as something utterly different: the swapping of a commodity (with intrinsic use-value) for a credit (a relation of debt that has no intrinsic value). This redefinition of exchange, based on a far-reaching interpretation of Innes will serve as the foundation for all the arguments to come in the book

Chapter Three: Money Theories Today

The first of these arguments takes the form of a sympathetic but still biting critique of the two dominant theories of money today: Randall Wray's post-Keynesian "modern money theory" and Geoffrey Ingham's heterodox account. Both authors are to be repeatedly praised for moving the debate on money forward, and for uncovering so many of the pervasive myths and falsehoods of the commodity theory of money that has undergirded the neoclassical paradigm for almost 150 years. But I show here that both theories come up against significant limits and that neither can serve as an adequate guide to understanding money rigorously in twenty-first-century capitalist social orders.

In Wray's case, the correct instinct that the orthodoxy is wrong leads often to a false logic by which anything not orthodox must be right. In some ways Wray simply fails to develop a robust theory of money because he skips that step, rushing from the false orthodox theory to a set of policy proposals (particular around government debt). Ingham's work is much more rigorous, significant, and imposing, and I affirm that to date his has been the best theory of money available. But in addition to oversimplifying the history of money, Ingham fails to pursues the credit theory to its radical and logical ends. He therefore traps himself in some sociological faults, particularly the idea that money as debt could be a "debt to society." I show that credit and debt can only be a relation between identifiable parties, and that "debt to society" not only proves conceptually incoherent but also leads us astray in trying to make sense out of today's money practices (see Chapters Five and Six).

Chapter Four: All Credit is Money

Here I push beyond Ingham and all other extant theories of money by taking the credit theory to its logical conclusion. Many writers have affirmed Innes's basic point that all money is credit while trying to hold onto a fundamental (ontological) distinction between credit as a mere promise to pay, and money as the instrument of payment itself. I show here that to take the credit theory of money seriously, we have to admit that in conceptual terms, it is impossible to distinguish strictly between credit and money. The practical distinction proves crucially important (some credits do not function as money, while some do), but this empirical fact cannot substitute for theoretical proof. Accordingly, this chapter makes the case for the following five theses, which could be understood as the book's fundamental theses on money:

1. Both empirically and ontologically, all money is credit





2. Empirically, money is credit that circulates (money that is transferred)





3. Ontologically, all credit is transferable





4. Ontologically, all credit is "money" (or "money" does not exist)





5. Both ontologically and empirically, not all money-credit is the same; there is a hierarchy of money

Chapter Five: Money Markets

At this juncture my book takes a turn that has truly not been attempted in other efforts to theorize the nature of money: it directly addresses today's money markets, the site of trillions upon trillions of turnover in denominated money value, and attempts to make sense of them in terms of the theory of money advanced so far. I open the chapter with a brief but important critique of Stephanie Kelton's very recent (and exploding in popularity) book, The Deficit Myth. This forms an important segue, because Kelton's conceptualization of money as "points" issued by the government, completely fails to take account of the relations of credit and debt, and their circulation in today's money markets.

The chapter offers a rather straightforward (but not for that reason any less important) introduction to the "balance sheet model" of understanding money, particularly as exemplarily illustrated in Perry Mehrling's work. Starting with the basic understanding of the way that loans create money through the simultaneous creation of both an asset and a liability on the balance sheet of both the creditor and the debtor, I move on to map out how the $7 trillion dollar (daily) repo market works. This explanation allows me to address derivatives. Derivatives are doubtless a crucial aspect of capitalist society today and essential to the way money works, yet most works on the theory of money are completely silent on them. I explain how the radical credit theory of money can makes sense of derivatives - precisely as money. Finally, but quite importantly, this lets me address the issue of the "price" of money in money markets, the way in which credit/debt, which has no value, can be exchange for other forms of credit/debt, which similarly have no value. This leads me to a theory of financial exchange as the swapping of money-credit for money-credit - a complement to and extension of the theory of economic exchange first developed in chapter two.

Chapter Six: Money Today

I conclude the book not with theoretical speculation or historical prediction, but with a brief look at some of the most pressing money-questions facing us today. I address, in turn, "world money" (from the gold standard, to the US dollar as the international reserve currency), "cryptocurrency" (including bitcoin and blockchain technology itself), and conclude with a few remarks on the nature of money and capitalism.