neutral money J Ingham

 

(1) Why so many economists are still neutral money credit-money deniers is nicely explained  by sociologist Geoffrey Ingham in “The Nature of Money” loc 547  (all emphases added)

“Real (economic) analysis proceeds from the principle that all the essential phenomena of economic life are capable of being described in terms of goods and services , of decisions about them , and of relations between them .

Money enters the picture only in the modest role of a technical device that has been adopted in order to facilitate transactions . . . so long as it functions normally , it does not affect the economic process , which behaves in the same way as it would in a barter economy : this is essentially what the concept of Neutral Money implies .

Thus , money has been called a ‘ garb ’ or ‘ veil ’ of the things that really matter . . .
Not only can it be discarded whenever we are analyzing the fundamental features of the economic process but it must be discarded just as a veil must be drawn aside if we are to see the face behind it.   …

The most serious challenge that the existence of money poses to the theorist is this : the best model of the economy cannot find room for it . The best – developed model is , of course , the Arrow – Debreu version of a Walrasian general equilibrium . A world in which all conceivable contingent future contracts are known neither needs nor wants intrinsically worthless money .    …

Despite the inexorable growth of bank credit – money , orthodox academic economists clung , with increasing desperation , to the anachronistic theory . Their model of money supply was , in effect , an empirical generalization of a naturally constrained supply of a metallic monetary base provided by a central authority ( the mint ) that was outside the market . That is to say , in the terminology of the late twentieth century , it was ‘ exogenous ’ .

The retention of the commodity theory and its assumptions was achieved by maintaining a sharp distinction between money – proper and credit . The credit supply was seen as the top of a large inverted pyramid on the narrower base of the gold standard . The direct question of whether credit was money was studiously avoided in orthodox circles , but given its pivotal importance in capitalist economies , credit was gradually incorporated into orthodox quantity analysis .

However , this merely exposed the contradictions and inconsistencies in the commodity theory . For example , most orthodox economists of the early twentieth century got little further than seeing credit as a means of economizing on money – proper . But they all stopped short of the idea that bank loans might create credit – money in the form of deposits that were relatively autonomous with respect to the stock of precious metal money .

Credit could not easily be accommodated in the concept of the ‘ real ’ economy as a structure of exchange ratios ( object – object relations ) based on the preferences of individual utility maximizers ( agent – object relations ) . The creation of money by the creation of the social relation of debt ( agent – agent relations ) was utterly incompatible with the methodology of orthodox neoclassical economics . And the extension of this idea … that all forms of money , including commodity – money , are constituted by a social relation of credit was anathema .”

See also Pettifor on Ingham