This post is a comment on this comment:
I do not deny that money has a long history - much longer than Krugman & Co. may believe; I do not suppose that credit relations must stem from modern capitalism (as many Postkeynesians seem to suggest in claiming that financial capitalism is not about the accumulation of goods but rather of money). What I do think, however, is that a credit-relation depends on two simple facts:
- First, the creditor has to have some wealth which he can lend to a debitor. And he must have enough wealth to sustain consumption so as it allows for subsistence. The assumption that he could earn income on his labor (that is, out of non-capital/-wealth which could compensate the temporary losses in income) would presume an economic system already in existence, such that credit contracts could be no cause of it. Thus, where does all this wealth come from? You cannot start with man already provided with the means for subsistence.
- Second, why is the debitor able to amortize debt and how does he finance interest? If he plans to make a future sacrifice, we are talking about consumer credit only. But this kind of credit (which is indeed the older one and explains the exorbitant interest rates at that time - no width and depth market for such kind of credit - which led to such absurdities as usury laws) is in no way able to explain the increases in the division of labor which is a matter of exchange and production. Thus the debitor has to earn interest by producing goods, that is, by transforming inputs into output and selling the latter on the market. But this, again, presupposes a production economy already to exist, with markets and money prices for all goods and factors utilized. Thus we are in need of rational economic calculation which is a precondition for economies beyond the scale of the primitive tribe. Economic calculation in turn depends on money prices - and thus on the pre-existence of money as a medium of exchange. This is so because without money prices our ordinal and thus just ranked preferences could not be transformed into cardinality which alone allows to confront money costs with revenues and thus to define profit. And profit, of course, is the guiding incentive for all production.
You have to have money before you have credit (with the exception of some forms of collateral consumption loans - Realkredit). It seems that Heinsohn/Steiger declare a mere symptom (but an important one) of man's "propensity to truck and barter" to be the final cause. But I will read them ... I promise.
PS: I guess the root of the error lies in the mistake to identify the market for credit as the market for money (as done most prominently by Keynes). Although the demand and supply of money do have an impact on the rate of interest and thus affect the market for credit, the latter is essentially a market for money capital, that is for savings hunting for investment opportunities. Once credit is located into the capital market any suggestion that credit-relations precede and account for production based on the division of labor may indeed sound absurd: A capital market is surely the outcome of economic activity. Its most important function is to enlarge the efficiency of allocation and to allow for rapid accumulation of capital and progress. Credit relations allow for more efficient intertemporal allocation, but they are no premise for market economies to operate at an admittedly low scale.
