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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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The Prevailing Opinion on the Relationship between Credit and Capital Goods (the Influence of Capital on Credit)

The Prevailing Opinion on the Relationship between Credit and Capital Goods (the Influence of Capital on Credit)

Chapter:
(p.82) (p.83) [2.]A. The Prevailing Opinion on the Relationship between Credit and Capital Goods (the Influence of Capital on Credit)
Source:
Economic Theory of Bank Credit
Author(s):

L. Albert Hahn

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198723073.003.0004

This book’s theory stresses the effect of credit on capital but the literature is preoccupied by the effect of capital on credit. Two broad perspectives on the effect of capital on credit, namely the barter and the monetary perspective, are set out. There is no money in a barter economy and so goods have to be traded against goods. Therefore capital goods can only be obtained by borrowing from another individual who saved some goods. Thus, in a barter economy savings determine the supply of capital goods. The interest rate balances the supply and demand for capital goods. Despite being logically coherent the barter view is not applicable to the modern economy. In the modern economy capital goods are not rented but usually bought on the ordinary goods market. The amount of capital goods therefore affects the goods’ price not the interest rate.

Keywords:   barter economy, monetary economy, credit, capital, capital market

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