Debt: The First 5000 Years - autonomous learning

54 DEBT
Now, John Maynard Keynes himself was much more open to what
he liked to call the "alternative tradition" of credit and state theories
than any economist of that stature (and Keynes is still arguably the single
most important economic thinker of the twentieth century) before
or since. At certain points he immersed himself in it: he spent several
years in the 1920s studying Mesopotamian cuneiform banking records
to try to ascertain the origins of money-his "Babylonian madness,"
as he would later call it.26 His conclusion, which he set forth at the
very beginning of his Treatise on Money, his most famous work, was
more or less the only conclusion one could come to if one started not
from first principles, but from a careful examination of the historical
record: that the lunatic fringe was, essentially, right. Whatever its earliest
origins, for the last four thousand years, money has been effectively
a creature of the state. Individuals, he observed, make contracts with
one another. They take out debts, and they promise payment.
The State, therefore, comes in first of all as the authority of law
which enforces the payment of the thing which corresponds to
the name or description in the contract. But it comes doubly
when, in addition, it claims the right to determine and declare
what thing corresponds to the name, and to vary its declaration
from time to time-when, that is to say it claims the right
to re-edit the dictionary. This right is claimed by all modern
States and has been so claimed for some four thousand years
at least. It is when this stage in the evolution of Money has
been reached that Knapp's Chartalism-the doctrine that money
is peculiarly a creation of the State-is fully realized . . .
To-day all civilized money is, beyond the possibility of dispute,
chartalist. 27
This does not mean that the state necessarily creates money. Money
is credit, it can be brought into being by private contractual agreements
(loans, for instance). The state merely enforces the agreement
and dictates the legal terms. Hence Keynes' next dramatic assertion:
that banks create money, and that there is no intrinsic limit to their
ability to do so: since however much they lend, the borrower will
have no choice but to put the money back into some bank again, and
thus, from the perspective of the banking system as a whole, the total
number of debits and credits will always cancel out.28 The implications
were radical, but Keynes himself was not. In the end, he was always
careful to frame the problem in a way that could be reintegrated into
the mainstream economics of his day.