Wilhelm Lautenbach’s credit mechanics – a precursor to the current money supply debate

Frank Decker and Charles A. E. Goodhart

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This article assesses the theory of credit mechanics within the context of the current money supply debate. Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. Credit mechanics overcomes a one-sided, bank-centric view of money creation, which is often encountered in monetary theory. We show that the money supply is influenced by the interplay of loan creation and repayment rates; the relative share of credit volume neutral debtor-to-debtor and creditor-to-creditor payments; the availability of loan security; and the behaviour of non-banks and non-borrowing bank creditors. With the standard textbook models of money creation now discredited, we argue that a more general approach to money supply theory involving credit mechanics needs to be re-established.

Keywords: bank credit creation; money supply theory; credit and balances mechanics; borrowers' collateral (search for similar items in EconPapers)
JEL-codes: E40 E41 E50 E51 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022-03-04
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-mon and nep-pay
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Published in European Journal of the History of Economic Thought, 4, March, 2022, 29(2), pp. 246-270. ISSN: 0967-2567

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:111819

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