L. Albert Hahn
- Published in print:
- 2015
- Published Online:
- November 2015
- ISBN:
- 9780198723073
- eISBN:
- 9780191789649
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198723073.003.0004
- Subject:
- Economics and Finance, Macro- and Monetary Economics, Financial Economics
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 ...
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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.Less
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.
