Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Towards the reconstruction of Schumpeter’s credit theory of money: Wicksell, Hahn, and the monetary circuit

Seo Takashi, Kanazawa University

The purpose of this research is to examine whether or not it is possible to place Schumpeter's monetary theory clearly in the genealogy of the history of economics on the construction of the monetary economic theory. The monetary economic theory is considered to have opened its doors with Keynes, but there are various interpretations of the genealogy of Keynes’s monetary theory. For example, there is a debate over the so-called ‘Wicksell Connection.’ The genealogies of monetary economic theory generally share the rejection of the quantity theory of money, the exogenous money supply and the neutrality of money, which is also shared by Schumpeter. However, just as Schumpeter regarded Walras’s general equilibrium system as a steady-state theory and developed it in his own way, he also tried to overcome the quantity theory of money, which was the dominant monetary theory at the time, by adding his own elements while respecting it. In this study, the discussion is framed from the perspective of Schumpeter’s predecessors, contemporaries and successors to his monetary theory. The first is K. Wicksell, who, like Schumpeter, paid homage to the general equilibrium system and pioneered his own way to overcome the quantity theory of money. Wicksell’s ‘pure credit money model,’ whose starting point was the creation of deposits through bank lending, can be considered identical to Schumpeter’s descriptive theory of various phases of economic development. Next, the discussion of L. Albert Hahn, who, together with Schumpeter, was the leading exponent of money and credit theory in Germany at the time, is discussed, with reference also to Hagemann (1997) and Hagemann’s ‘Introduction’ to Hahn (2015), to discuss the similarities and differences between the two theories. Finally, the ‘monetary circuit theory,’ which shares a monetary vision with Schumpeter, is discussed and contrasted with Schumpeter’s. This is because the circuit theory's viewpoint, which clearly distinguishes between the flow of credit and the a posteriori stock of money, with credit as a means of production and money as a means of transaction, is considered to correspond to Schumpeter’s ‘credit theory of money.’ From the above considerations, this study derives some implications for the reconstruction of the ‘credit theory of money’, which Schumpeter seems to have been unable to complete until the end.

Area: Eshet Conference

Keywords: credit theory of money, J.A. Schumpeter, K. Wicksell, L.A. Hahn, monetary circuit theory

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