Credit mechanics: a precursor to the current money supply debate

Frank Decker and C. A. E. Goodhart

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

Abstract: This paper 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 behavior 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 established.

Keywords: balances mechanics; bank credit; money creation; credit creation; credit mechanics; money supply theory (search for similar items in EconPapers)
JEL-codes: E40 E41 E50 E51 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac, nep-mon, nep-pay and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:100017

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