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Economic Theory of Bank Credit$
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L. Albert Hahn

Print publication date: 2015

Print ISBN-13: 9780198723073

Published to Oxford Scholarship Online: November 2015

DOI: 10.1093/acprof:oso/9780198723073.001.0001

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Forms of Credit

Forms of Credit

(p.9) [1.]A. Forms of Credit
Economic Theory of Bank Credit

L. Albert Hahn

Oxford University Press

This chapter examines the close relationship between money and the capital market (summarised in the term ‘credit market’) and its treatment in the literature. Three main strands of ‘capital’ interpretation are identified and negated, namely capital as asset, produced means of production, and some stock of money. The quantity theory of money is logically correct in a classical economy without a developed financial sector but does not hold any more in the modern economy. The analysis of the modern economy is based on a pure credit economy and shows that banks can create money by themselves. The credit is granted in the form of a cheque account. As the cheque starts to circulate (and assumes the role of money), auxiliary bank actions are necessary. These include credit prolongation, credit consolidation, and credit closure. Trust is of high importance in a credit economy as banks are brokers of trust.

Keywords:   money market, capital market, finance, cash economy, credit economy, circulating credit, money creation, credit creation

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