The notion that no one mayknows anything at all about how an economy works is shown by this article from May 1913. Excerpts from What is Money? by A. Mitchell Innes. Attempts to demonstrate the notion that money is nothing other than a form of debt. I don’t have any view on this other than to note its existence since I have only just come across Innes through one of his modern day advocates. I’m not even sure I know what follows if any of this is true.

 I have made this rapid survey of early coinages to show that from the beginning of the rise of the art of coining metal, there is no evidence of a metallic standard of value, but later history, especially that of France up to the Revolution, demonstrates with such singular clearness the fact that no such standard ever existed, that it may be said without exaggeration that no scientific theory has ever been put forward which was more completely lacking in foundation.

The official values were purely arbitrary and had nothing to do with the intrinsic value of the coins.

The general idea that the kings wilfully debased their coinage, in the sense of reducing their weight and fineness is without foundation.

Now if it is true that coins had no stable value, that for centuries at a time there was no gold or silver coinage, but only coins of base metal of various alloys, that changes in the coinage did not affect prices, that the coinage never played any considerable part in commerce, that the monetary unit was distinct from the coinage and that the price of gold and silver fluctuated constantly in terms of that unit (and these propositions are so abundantly proved by historical evidence that there is no doubt of their truth), then it is clear that the precious metals could not have been a standard of value nor could they have been the medium of exchange.

Adam Smith’s position depends on the truth of the proposition that, if the baker or the brewer wants meat from the butcher, but has (the latter being sufficiently provided with bread and beer) nothing to offer in exchange, no exchange can be made between them. If this were true, the doctrine of a medium of exchange would, perhaps, be correct. But is it true?

Assuming the baker and the brewer to be honest men, and honesty is no modern virtue, the butcher could take from them an acknowledgment that they had bought from him so much meat, and all we have to assume is that the community would recognize the obligation of the baker and the brewer to redeem these acknowledgments in bread or beer at the relative values current in the village market, whenever they might be presented to them, and we at once have a good and sufficient currency. A sale, according to this theory, is not the exchange of a commodity for some intermediate commodity called the “medium of exchange,” but the exchange of a commodity for a credit.

It is here necessary to explain the primitive and the only true commercial or economic meaning of the word “credit.” It is simply the correlative of debt.

Credit is the purchasing power so often mentioned in economic works as being one of the principal attributes of money, and, as I shall try to show, credit and credit alone is money.

The really important characteristic of a credit is not the right which it gives to “payment” of a debt, but the right that it confers on the holder to liberate himself from debt by its means—a right recognized by all societies. 

For many centuries, how many we do not know, the principal instrument of commerce was neither the coin nor the private token, but the tally, a stick of squared hazel-wood, notched in a certain manner to indicate the amount of the purchase or debt. The name of the debtor and the date of the transaction were written on two opposite sides of the stick, which was then split down the middle in such a way that the notches were cut in half, and the name and date appeared on both pieces of the tally. The split was stopped by a cross-cut about an inch from the base of the stick, so that one of the pieces was shorter than the other. One piece, called the “stock,” ⁶ was issued to the seller or creditor, while the other, called the “stub” or “counter-stock,” was kept by the buyer or debtor. Both halves were thus a complete record of the credit and debt and the debtor was protected by his stub from the fraudulent imitation of or tampering with his tally.

The labors of modern archaeologists have brought to light numbers of objects of extreme antiquity, which may with confidence be pronounced to be ancient tallies, or instruments of a precisely similar nature; so that we can hardly doubt that commerce from the most primitive times was carried on by means of credit, and not with any “medium of exchange.”

We know, of course, hardly anything about the commerce of those far-off days, but what we do know is that great commerce was carried on and that the transfer of credit from hand to hand and from place to place was as well known to the Babylonians as it is to us. We have the accounts of great merchant or banking firms taking part in state finance and state tax collection, just as the great Genoese and Florentine bankers did in the middle ages, and as our banks do to-day.

In China, also, in times as remote as those of the Babylonian Empire, we find banks and instruments of credit long before any coins existed, and throughout practically the whole of Chinese history, so far as I have been able to learn, the coins have always been mere tokens.

There is no question but that credit is far older than cash.

There can be little doubt that banking was brought to Europe by the Jews of Babylonia, who spread over the Greek Colonies of the Asiatic coast, settled on the Grecian mainland and in the coast towns of northern Africa long before the Christian era. Westward they travelled and established themselves in the cities of Italy, Gaul and Spain either before or soon after the Christian era, and, though historians believe that they did not reach Britain till the time of the Roman conquest, it appears to me highly probable that the Jews of Gaul had their agents in the English coast towns over against Gaul, and that the early British coins were chiefly their work.

The monetary unit is merely an arbitrary denomination, by which commodities are measured in terms of credit, and which serves, therefore, as a more or less accurate measure of the value of all commodities.

Money, then, is credit and nothing but credit. A’s money is B’s debt to him, and when B pays his debt, A’s money disappears. This is the whole theory of money.

On no banking question does there exist more confusion of ideas than on the subject of the nature of a banknote.

The quantitative theory of money has impelled all governments to regulate the note issue, so as to prevent an over issue of “money.” But the idea that some special danger lurks in the bank-note is without foundation. The holder of a bank-note is simply a depositor in a bank, and the issue of bank-notes is merely a convenience to depositors.

Future ages will laugh at their forefathers of the nineteenth and twentieth centuries, who gravely bought gold to imprison in dungeons in the belief that they were thereby obeying a high economic law and increasing the wealth and prosperity of the world.

A strange delusion, my masters, for a generation which prides itself on its knowledge of Economy and Finance and one which, let us hope, will not long survive. When once the precious metal has been freed from the shackles of laws which are unworthy of the age in which we live, who knows what uses may not be in store for it to benefit the whole world?

… and to deal with governments at the same time.