Creditary Economics

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"Creditary economics is a broad and inclusive term for all theories of economics and political economy that drastically de-emphasize or deny altogether a role for debt and assumptions of fixed yield for such financial capital instruments. These theories usually emphasize a role for local currency, especially in keeping a service economy functioning normally even during national or global depression.

2. Source:

"Creditary" implies a comprehension of economics which is based on the entire spectrum of credit, not just on money. (author: Chris Meakin)

Creditary Economics takes a systemic and long term, circular-flow view of the economic process. It anchors its monetary analysis in the bedrock principles of double entry book-keeping ensuring logical coherence and consistency therein. (author: Gunnar Tomasson)


British economist Geoffrey Gardiner for the Post-Keynesian discussion group:

"The first principle of creditary economics is that the division of labor and the practice of granting credit were born as Siamese twins. Once division takes place, the worker inevitably finds himself producing and supplying not for immediate reward, but in expectation of something in the future. He grants trade credit willy-nilly, even if he is part of a command economy. The word credit is Latin for "he trusts" or "he believes," and that is precisely what the producer does when he is a member of a society that has divided labor up. He produces, and he trusts he will get something back. There is an implied promise either by individuals or by the group that he will get something adequate.

A promise to supply in the future some specified thing is of necessity a store of value, and a store of value can serve as a medium of exchange. Debts can be monetized, which means their use as a means of exchange is facilitated. The oldest way of doing this was the tally stick, replaced by the Bill of Exchange when paper became cheap. All media of exchange are debts, but not all debts can be used as media of exchange. For that purpose they have to be assignable without consent.

Government debts are a very popular means of exchange, and they gave rise to the state theory of money. That theory is broadly true, but like all good rules it has exceptions. If the state does not provide a money system, the public will do it for itself, and for much of history the Bill of Exchange has fulfilled that purpose.

Although coins and notes are government debts, they are debts the government has no wish, indeed no intention, of honoring. The British £20 note actually has written on it "I promise to pay the bearer the sum of twenty pounds," and is signed by the chief cashier of the Bank of England. But if you take the note to the chief cashier and demand payment you only receive another twenty-pound note in exchange. Adam Smith noted this phenomenon. He remarked that the man with a sovereign was like a man who held a Bill of Exchange on every trader in his locality.

Coins can be described as anonymous debt tokens or equivalently as anonymous credit tokens. Originally a debt had a named creditor and a named debtor. With the invention of coins, both the creditor and the debtor became anonymous. The holder of a coin is a person who has provided goods and services greater than he has consumed, and the coin represents the difference between the two. So he is a creditor of society. The debtor is anyone who recognizes the debt by supplying goods in return for the coin.

Nowadays the bank note is in the same category. It too is an anonymous debt token even though it looks like a state debt, and even though the Bank of England religiously keeps assets to the same value as the note issue to back them.

Since any debt can be monetized, it follows that monetary economists are remiss in concentrating their attention only on the debts that have been monetized in the form of bank deposits. Creditary economists teach that all credit is important. We call bank deposits the intermediated credit supply, and the rest is the non-intermediated credit supply.

The ability of banks to allow borrowers to create new credit is limited by the capital base of the bank. The belief that it is limited by reserve requirements is a popular myth. The Basel Accord's requirements regarding capital adequacy ratios are vital. But they are not all powerful in view of the ease with which debts can be switched out of the intermediated category. In the modern jargon, they can be securitized.

A failure to pay a debt can have a multiplier effect, causing more failures. The granting of new credit can have a multiplier effect, as the new debt can be used to create secondary debt. That is, the money created can be lent again and again until it is destroyed by being used to reduce debt.

Every act of lending by a bank automatically creates the deposits that will balance it. Therefore every act of real investment that is financed by newly created credit automatically creates the savings to fund it. The way to encourage real investment is to create a favorable environment for it, not by encouraging saving." (


"Creditary economics challenges these assumptions, especially that global market values reflect local value of lifeThe value of life is an economic or moral value assigned to life in general, or to specific living organisms. In social and political sciences, it is the marginal cost of death prevention in a certain class of circumstances. As such, it is a statistical t or global value of EarthIn economics, value of Earth is the ultimate in ecosystem valuation, and important to value of life calculations. It begins with the simple problem that if the Earth ceases to support life, and human life does not continue elsewhere, all economic activity.

Although the name emerged relatively recently and is associated to a degree with Henry Liu and others who refer to the G8The Group of Eight G8 is the coalition of eight of the world's leading industrialized nations: the United Kingdom, France, Germany ( West Germany to 1991), Italy, Japan, and the United States, (the G6, 1975), Canada (the G7, 1976), and Russia (first known as "gang8", many predecessor theories and movements actually share these assumptions, while disagreeing on a great many elements of political economy:

  • Islamic economics is economics in the political context of Islam. Because the Qur'an spoke against usury in the context of early Muslim society, it generally entails trying to remove or redefine interest rates from financial institutions. In doing so, Islam permits only joint venture. All parties agree to share in the profits and losses of the enterprise. The venture is for one specific project only, rather than for a continu investmentInvestment is a term with several closely related meanings in finance and economics. It refers to the accumulation of some kind of asset in hopes of getting a future return from it.
  • Ecological economics and its successor human development theory
  • Feminist economics and the more general Green economics which put a high premium both on nature's services to humanity and mother's services to children, neither of which has status in debt economics

An important point of consensus among these is that debt reflects power relations that are incompatible with creativity, conservation of either energy or materials , and the integrity of natural capital, social capital and individual capital." (

More Information

  1. Institute for Creditary Economics