Basic theory of credit creation

The theory of credit creation holds that credit creates capital and credit is money. Money is a means of exchange, so everything with the function of means of exchange is money. Since credit is a means of circulation and payment, credit is money. Credit is wealth. Because money is wealth, credit is money and credit is wealth. Credit creates capital. Credit is the capital of production. Through the expansion of production capital, that is, the increase and expansion of credit, social wealth can be created, business can be prosperous, and the national economy will have greater vitality. Banks have unlimited ability to create credit.

John law believes that the more money a country has, the more jobs it will create and the more national wealth it will increase. He believes that money has positive power, and the expansion of credit and the increase of money can promote the development of industry and commerce. Henry Thomton, a British banker, believes that "the price of goods depends on the ratio of supply and demand of goods and the ratio of supply and demand of money. As commodities increase, the demand for paper money increases, so when paper money increases, but the demand for paper money does not expand, the price will inevitably rise. Rising prices and inflexible wages, on the one hand, stimulate production, on the other hand, limit consumption, leading to an increase in goods as capital. "

McRudd believes that credit is money, money and credit are wealth, credit is production capital, which can bring profits, and banks are the creators of credit, so they are also the creators of capital. The capital that banks can create depends on their reserve requirement ratio.

The theory of credit creating capital is the most powerful and influential credit theory in modern western society, which laid the foundation for the formation of many economists' theoretical systems later.