Sorry about the "empty" reply; hit the wrong key!
Duncan comments that:
|I think the formulation "a pure credit system is quite possible, in 'pure
|theory', even without convertibility" is doubtful. What is possible in
|pure theory is a credit system that operates with a zero or vanishing
|reserve, due to the possibility of clearing.
I recently undertook that "pure theory" exercise, in an attempt to put
Minsky's "Financial Instability Hypothesis" into a multi-sectoral
framework. The system was a circulating capital only, no technical change,
no population growth, no stocks, three class model (workers, bankers,
capitalists) with multiple commodities and hence input-output relations.
One of the side effects of this endeavour was the result that bankers'
hoards, while being determined by the system, did not themselves
determine anything else in the system. It was quite possible to commence
with zero or even negative hoards, or to have negative hoards develop,
without affecting the economy itself one zot.
The intuitive explanation for this state of affairs is that this model
approximates a rural economy with moneylenders, where a moneylender is
someone whose declaration that they have money to lend is accepted
(because of their apparent material wealth--their visible collateral,
such as land). But in such a (non-state) system, does any borrower
go and check the moneylender's vault to see whether there is any money
already inside it? Not likely.
Instead, what happens is that the moneylender's claim of having the
assets/gold to back his/her lending is accepted, and then the book-keeping
entries made by the moneylender are accepted as money. The moneylender's
hoard is affected by his/her net profit/loss position per period, but that
hoard has no effect on prices or demand. All of this works without any
presumption that there is any convertibility to any commodity standard
of money.
Cheers,
Steve Keen