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Makoto Itoh
Political Economy of Money, Credit and Finance
in Contemporary Capitalism: Remarks on
Lapavitsas and Dymski

A characteristic of Marxian political economy is the

theoretical elucidation of the history of capitalism,
the latter being based on the market economy. In this
respect, Marxian political economy must always be
aware of historical materialism as ‘a guiding thread’.1
The task of Marxian political economy, however,
must also be relatively independent of particular
ideological worldviews, and in its scientific research
it should follow historical facts and the objective
logic of capitalist market economies. At the same
time, by elucidating the fundamentally anarchic
and autonomous economic order that is grounded
on the market economy, Marxian political economy
can provide the scientific basis that underpins
historical materialism, especially with regard to the
distinction between, and the interrelations which
link, the economic substructure and the non-economic
superstructure of societies.
However, the theoretical treatment of the history
of capitalism is far from an easy task. For one thing,

1 Marx 1970, p. 20.

Historical Materialism, volume 14:1 (97–112)

© Koninklijke Brill NV, Leiden, 2006
Also available online – www.brill.nl
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98 • Makoto Itoh

the historical nature of capitalism is not simple. It should be distinguished

from forms of market economy that long preceded capitalism. The nature of
the capitalist market economy, moreover, has itself changed in the course of
global history. In order to appreciate the nature of contemporary capitalism,
we should avoid overgeneralisation of many its current economic characteristics
in the light of historical stages of capitalist development.
In contrast to Marxian political economy, other schools in economics,
particularly orthodox neoclassical economics, tend to be ahistorical and to
over-generalise the contemporary features of market economy on the basis
of abstract fundamental theory. In addition, orthodox neoclassical economics
generally believes in the harmonious efficiency of the workings of the market
economy. In our 1999 book, Costas Lapavitsas and I set out to criticise such
tendencies in the orthodox neoclassical economics. The book illustrated the
strengths of Marxian political economy as a systematic monetary theory, this
being derived from its ability to demonstrate the fundamentally unstable and
crisis-ridden character of capitalist market economy.
Using that joint analysis as a basis, Lapavitsas has extended his work in
Social Foundation of Markets, Money and Credit published in 2003. Here, he
attempts to incorporate the roles of broad social norms, customs, institutions
and flows of information into the Marxian political economy of money and
credit, by critically reviewing recent academic literature in anthropology and
sociology, as well as institutionalist and information-theoretic economics. In
this book, Lapavitsas has contributed to reviving our fundamental interest
in the issue of relating economic theories of money and credit to historical
materialism.
However, I believe that his attempt needs further clarification, both
methodological and supplementary considerations regarding contemporary
features of money, credit and finance. I will briefly examine those issues,
taking as my point of departure the contribution of Gary Dymski in this issue
of Historical Materialism.

1. Methodological issues
Dymski asserts that heterodox monetary theory should incorporate uncertainty
and real time into its core framework. He argues that a Marxian approach
can contribute to such heterodox monetary theory, but that it has no exclusive
claims to being able to do so: it is one among several entry points provided
by a range of different theoretical perspectives. According to Dymski,
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 99

for Lapavitsas, by contrast, the basic theoretical imperative in modelling

money and finance is to work outward from the dynamics of capitalist
surplus extraction and accumulation. . . . For him, the task of theory is to
exposit how the logic of capital accumulation underlies phenomena observed
in the economy today. . . . Thus, to understand a phenomenon – such as
‘trust’ and its role in social interactions – is to see how it affects the internal
logic of capital accumulation.

At the same time, Dymski refers favourably to recent work by myself as

presenting an approach different from that of either Lapavitsas or, indeed,
of Dymski himself.2 According to Dymski, ‘Itoh appears willing to live with
this tension between ideal-logic-of-capitalism and lived-capitalist systems’.
Dymski refers, for example, to my analysis of the Japanese system of housing
finance, as well as of the role of money and finance in the Japanese speculative
asset-bubble crises of the past twenty years. This analysis takes into consideration
relatively independent social factors, such as changes in family structure,
gender discrimination, declining birth-rate, and economic policies, while also
accepting the relevance of post-Keynesian formulations of financial instability.
Three major points can be made in relation to Dymski’s statements. Firstly,
as Dymski well recognises, the works of mine to which he refers are
methodologically located at the third, most concrete, research level of analysis
of contemporary capitalism. This is grounded on the first research level of
the basic principles of capitalist market economy, as well as on the second
research level of the stages of world-capitalist development. This methodological
approach follows Uno’s systematisation of the entire field of political economy.
At the second and third levels of research, relatively independent social-
historical factors can be taken into consideration in relation to the actual
process of capitalist accumulation, such as various non-capitalist producers
(including peasants), changes in family life, concrete industrial technologies,
and actual economic policies. Thus, at these levels of research, there is
considerable room and flexibility for Marxian political economy to co-operate
with other streams of heterodox economics.
In my reading, Lapavitsas’s 2003 book concentrates mostly on the first level
of research which deals with the basic principles of political economy. If the
author were to move to the second or third level of research, he would readily

2 Itoh 2000, 2001a and 2001b.

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100 • Makoto Itoh

work with ‘a balance between one’s theoretical commitments and historical/

institutional analysis’ as Dymski suggests. In earlier work, Lapavitsas has
already produced such an analysis in examining the Japanese banking system.3
Secondly, at the level of basic principles, Lapavitsas in his 2003 book aims
to introduce the role of behavioural norms, social customs and institutions
into the theory of money and credit. Further, he intends to avoid the approach
of vulgar Marxism, in which all non-economic processes are deemed to derive
from capitalist economic processes. Thus he attempts to examine the interplay
between the economic and the non-economic relations in a capitalist market
economy more flexibly. In this respect, his intention is to broaden the scope
of the fundamental Marxian theory of money and credit in order to incorporate
significant elements of non-economic human behavioural norms and customs.
Dymski misses this aspect of Lapavitsas’s work, implying that it is not far
removed from the economic determinism of vulgar Marxism.
Thirdly, however, Lapavitsas’s work does contain weaknesses that appear
to expose it to such criticism. The following statement, made, it would seem,
against vulgar Marxism, leaves some doubt as to how far his position actually
is from the latter:

Rather, two related claims are made in this book. First, the capitalist economy
is permeated by non-economic relations that are specifically capitalist, and
directly reflect the economy’s class character. Typical examples are workplace
relations of power and authority between capitalists and workers, but
also of solidarity among workers. Second, there is a profusion of other
non-economic relations in the capitalist economy that are systematically
marshalled and placed at the service of capitalist enterprises. Familial relations
among parents and children, for instance, are integral to creating the ability
to work and securing a regular supply of workers in industry. Money and
credit, moreover, represent relations of trust and power in capitalist markets
that are mobilised to facilitate the profit-making activities of industry. As a
consequence, relations of trust and power acquire a social and specifically
capitalist character.4

It would have been desirable, especially in view of the concerns of non-

Marxist readers, such as Dymski, to have a more concrete explanation by
Lapavitsas of his definition and analytical treatment of non-economic relations

3 Lapavitsas 1996.
4 Lapavitsas 2003, p. 3.
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 101

in the theory of money and finance, especially the differences with economic
determinism in vulgar Marxism.
Relations of trust and power either within the capitalist workplace or within
the capitalist credit system, for instance, may still be economic under a certain
interpretation, and not particularly non-economic. When it is conceived outside
the simple approach of neoclassicism that identifies the market order totally
with economy, the distinction between the economic and the non-economic
is not self-evident methodologically. Again, if Lapavitsas were to work at
more concrete levels of research, he would find it easier to identify actual
non-economic social relations, such as political power and the policies of the
state, or gender relations, outside of the market and to clarify their interactions
with the dynamics of a capitalist market economy.
However, in making a favourable assessment of my work as empirical
analysis at the third level of research, Dymski has raised a further methodological
question which is both complex and significant.

This [Itoh’s approach at the third level] can be read in two ways. In one
reading, phenomena like credit crisis, breakdowns in monetary order, gender
role conflicts, and so on, are epiphenomenal and not accepted in the core
of ‘pure theory’. In another reading, contemporary Uno-school theorists
such as Itoh can be interpreted as walling off the notion of a ‘pure theory
of capitalism’ as depicting a situation which may be a reference point but
which is unattainable or unobserved in the world today. . . . Level-one theory
is, in effect, a closed system like the Walrasian general equilibrium; it exists
as a theoretical possibility, but is not embodied in the real world in which
we live. . . . As Itoh notes, the decline of the Keynesian state is reducing one
set of ‘impurities’ that have masked the workings of the capitalist cycle
identified in ‘pure theory’. But this development is arguably offset by other
‘impure’ factors such as the market manipulations of powerful multinational
corporations and the unique global role of the US economy as both lender
and consumer of last resort.

Principles of political economy derived by Uno-school theorists at level one

of research are sometimes indeed compared with Walrasian or other neoclassical
micro-economic theory, due to their pure and complete character. However,
in contrast to neoclassical theory, these principles are derived from Marx’s
Capital and elucidate the historical character and the fundamental contradictions
of the capitalist economy. Thus, credit crisises and the breakdown of monetary
order in a phase of classical business cycles are analysed as expressions of
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102 • Makoto Itoh

the internal contradictions of the capitalist economy. However, the more

specific historical reasons for the breakdown of the Bretton Woods international
monetary system, which led to the inflationary crisis at the beginning of 1970s
and initiated the decline of the Keynesian state, has to be treated at level
three of research, while considering the theory at level one as a reference
point.
However, I am not entirely certain how to respond to Dymski’s suggestion
that Uno theorists are ‘walling off’ the notion of a ‘pure theory’. We need to
be careful not to abandon or change the fundamental theory in Capital simply
on the basis that it is an outdated theoretical model that cannot deal with the
recent features of capitalism. We have seen how revisionists have failed in
their attempt to alter the basic principles of political economy in Capital to
take account of changes in capitalism since the late nineteenth century. The
attempts among non-revisionists to replace Capital by the theoretical models
of monopoly capitalism, or imperialism, or state monopoly capitalism have
also proved too hasty. The basic theory of capitalism at level one of research
remains relevant as long as the capitalist economy retains its fundamental
character as distinct from precapitalist or socialist societies. In addition to the
basic principles derived at level one, the intermediate theory of the stages of
capitalist development at level two, including the theory of imperialism and
models of more contemporary capitalism, is then necessary as a frame of
reference for more concrete analysis of contemporary capitalist economies at
level three. In this regard, I am reluctant to ‘wall off’ the pure theory of
capitalism in order simply to restructure basic theory in accordance with
contemporary changes in economic life.
On the other hand, it is worth noting that, in Uno’s 1964 book, ‘pure capitalist
society’ – chosen as the theoretical abstraction adequate for depicting the
internal logic of capitalism and deriving the principles of political economy
at level one – was based on the historical tendency to approach such a society
in the UK until the mid-nineteenth century. This society mainly consisted of
just three social classes, namely, capitalists, wage-workers, and landowners.
In contrast, other Uno theorists, including myself, have asserted that the basic
principles of political economy can be deduced directly from the actual history
of world capitalism and not from a presupposed hypothetical ‘pure capitalist
society’, limited to the historical period in which Marx lived. Thus, while still
maintaining the nature of ‘a pure theory’ of capitalist economy at level one,
some Uno-theorists are attempting to incorporate developments subsequent
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 103

to the middle of the nineteenth century, such as the growth of joint-stock

capitals, the emergence of the capital market, and the resultant financial
instability. They also endeavour to explore the theoretical implications of all
aspects of principles derived at level one for understanding the real world.
Thus the interaction between the basic principles at level one and the stages
theory of capitalist development, as well as concrete empirical research at
levels two and three, are areas of study which are being more actively pursued
than previously. Lapavitsas’s 2003 book is in line with such work by Uno-
school theorists, especially in its attempt to incorporate ‘non-economic’ social
factors such as customs, trust, power, and institutions into the basic theory
of money and credit.

II. The historical basis of theoretical abstraction

As Marxian political economy theoretically elucidates the history of the
capitalist market economy, the choice of the historical basis for its theoretical
abstractions is always a crucial issue. The following points are relevant in
this respect and are related to the previous arguments, though not directly.
Lapavitsas writes that, ‘it is assumed that capitalist social relations provide
apposite terrain for analysis of commodities’ and therefore also of money
and credit.5 Similarly, he suggests that:

analysis of capitalist commodity trading allows for concepts to be formulated

and conclusions to be drawn that afford insights into other trading. This
theoretical position derives directly from Marx for whom the fully developed
form of social phenomenon provides vital insights into its less developed
forms.6

However, in my reading, theoretical concepts in Marx’s Capital are not abstracted

exclusively from the fully developed capitalist market economy. Marx well
recognises an older and broader range of historical forms of market economy
(and a variety of functions of money), which precede and provide an essential
basis for capitalist economy. Marx writes as follows:

Had we gone further, and inquired under what circumstances all, or even
the majority of products take the form of commodities, we should have

5 Lapavitsas 2003, p. 12.

6 Lapavitsas 2003, p. 13. The reference is to Marx 1973, pp. 105–6.
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found that this only happens on the basis of one particular mode of
production, the capitalist one. Such an investigation, however, would have
been foreign to the analysis of commodities. The production and circulation
of commodities can still take place even though the great mass of the objects
produced are intended for the immediate requirements of their producers,
and are not turned into commodities, so that the process of social production
is as yet by no means dominated in its length and breadth by exchange-
value. . . . If we go on to consider money, its existence implies that a definite
stage in the development of commodity exchange has been reached. The
various forms of money (money as the mere equivalent of commodities,
money as means of circulation, money as means of payment, money
as hoard, or money as world currency) indicate very different levels of
the process of social production, according to the extent and relative
preponderance of one function or the other. Yet we know by experience that
a relatively feeble development of commodity circulation suffices for the
creation of all these forms.7

This broad historical characterisation of the forms of market economy, including

various functions of money, is presented here to demonstrate the specific
historical nature of capitalist economy, grounded upon the commodity form
of labour-power. We can further add the forms of merchant capital and interest-
bearing capital to the forms of market economy in general, these being older
and more widespread than the capitalist economy. I am concerned that the
importance of Marx’s distinction between the forms of market economy and
the capitalist market economy may be obscured by the fact that, from the
start, Lapavitsas concentrates on capitalist commodity exchange to provide
a theoretical basis for his abstractions. Indeed, even in a capitalist society, the
forms of commodity and money serve not only capitalists but broadly facilitate
the economic life of wage-workers, as well as peripheral non-capitalist
producers. Capitalist exchange utilises the wide range of existing commodity
relations as a social basis to promote profit making. Dymski’s concern that
Lapavitsas’s theory is too narrowly derivative from capitalist surplus-value-
extracting relations may partly relate to this point.
The logical necessity that the emergence of money must be treated as
commodity money originating in anarchic relations of commodity exchange,
is easier to understand if we take as a historical basis of abstraction, not just

7 Marx 1976, p. 273.

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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 105

the capitalist economy but also the older and broader historical existence of
commodity circulation. Indeed, Lapavitsas himself often refers to this older
and more extensive history of money when analysing money’s emergence,
especially in his discussion of anthropological work which examines the role
of social custom and habit.
The theoretical distinction between the forms of market economy and
capitalist market economy is also implicit in Lapavitsas, since he stresses that
the law of value (as the law regulating commodity exchanges on the basis of
labour-time socially necessary to produce commodities) is to be demonstrated
theoretically not by analysing the mere forms of market economy, but only
by considering the social system of capitalist production. This is very much
in line with the tradition of the Uno school.
Without a clear theoretical account which distinguishes the general forms
of market economy and the specific market forms of capitalism, the theoretical
possibility of market socialism, or socialist market economy, discussed in the
last chapter of Social Foundation of Markets, Money and Credit and in Political
Economy of Money and Finance, would remain unclear, or difficult to understand
in the light of the fundamental theory of money and credit.
In contrast to money, the growth of systematic and sophisticated credit
mechanisms (including various types of credit money) is clearly a product
of capitalist exchange. In this regard, we should probably separate the historical
basis of abstraction of the theory of money from that of the credit system. In
addition, we have to reconsider the historical changes in the capitalist market
economy by looking more closely at a number of further issues that concern
money and credit system more specifically in relation to contemporary
capitalism.

III. Remaining issues on contemporary capitalism

(i) The social foundation of credit and finance

In Chapter 4 of his 2003 work, Lapavitsas deals with the social foundation
of credit relations. The core mechanism of classic credit relations is analysed
by examining two major forms, namely commercial (or trade) credit and
banking credit. Commercial credit is spontaneously formed as trading of
commodities takes place among capitalists. Payment may be deferred, thus
giving rise to commercial bills. Banking credit ‘transcends commercial credit
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106 • Makoto Itoh

and broadens the basis of trust among capitalists by giving a more social
character to credit’.8 It ‘presupposes the creation of pools of idle money in
the normal course of industrial capitalist accumulation’.9 A bank can give
credit to capitalist borrower by merely making available to the borrower the
bank’s own promise to pay or by issuing a deposit to the borrower in exchange
for a commercial bill. It is noted that not merely the economic factor of a
potential generation of profit, but also broader social factors, such as family
ties or access to political power (which might imply a guaranteed access to
money for repayment) can play a considerable role in forming such credit
relations.
This theoretical treatment of the core mechanism of the classical capitalist
credit system is derived from Marx’s Capital and is in line with the Uno
school’s analysis of the principles of the credit system. Basically, it presents
a theoretical schema of the classical credit system as a social mechanism that
utilises idle capital internally and mutually among industrial and commercial
capitals. It should be mentioned that another approach can also be found –
one which treats interest-bearing capital as a credit relation between money
capitalists and functioning capitalists. However, given the basic principles of
the capitalist economy, it is hard to conceive of mere money capitalists who
abstain from directly investing their capital to make a profit, or of mere
functioning capitalists who lack their own capital for investment. The supply
of idle money from landowners, retired capitalists, rentiers, the middle
class, and even from wage-workers, would (more or less) indeed flow into
banks, but would then be mobilised in accordance with the dynamics of the
internal core mechanism of classic credit system.10 In treating the classic credit
system on the model of the system in mid-nineteenth-century England, as is
the case in Capital, the approach in Chapter 4 of Lapavitsas’s book is thus
legitimate.
However, if we also consider the capital market for shares in joint-stock
companies (and state bonds) as an important component of the financial
system, in combination with the credit system – thus extending the historical
basis of our abstraction into late capitalism – the role of the external supply
of idle money funds cannot easily be dismissed. Money capitals in the UK

8 Lapavitsas 2003, p. 81.

9 Lapavitsas 2003, p. 71.
10 Itoh 1988, p. 259.
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 107

economy, for instance, held by the rentier and landowner classes, and
accumulated in the British financial system, tended to become more and more
separated from industrial investment, and were directed instead to investment
in foreign securities. Thus Keynes’s inflationary policy had the aim of bringing
euthanasia to rentiers in order to promote industrial investment and
employment.
In the post-World-War-II period, household saving among the working
class in the advanced countries grew increasingly, including pension funds
and various kinds of insurance trust funds. During the period of Japanese
high economic growth until 1973, for instance, roughly 15 per cent of household
income was saved in banks and other financial institutions and mobilised as
a source of long-term fixed-capital investment by big businesses. This was
the basis of a pattern of over-lending by the main banks to favoured firms
with which they had close links. Since the 1980s, big companies have expanded
self-finance both by reducing real capital investment, and by increasingly
raising equity finance in the capital markets. As a result, Japanese household
saving became increasingly channelled by banks and other financial institutions
into medium and small businesses, real-estate business, housing finance and
other forms of consumer credit, as well as into speculative asset trading.
Financial bubbles have been one consequence, and another has been an
increase in a variety of forms of foreign investment.
Thus, the social foundation of capitalist credit and finance is now no longer
limited to an internal utilisation among firms of each other’s idle capital, but
has expanded to include household saving and borrowing by workers. In
this regard, inflation that brings occasionally even negative real interest rates
on saving, speculative bubbles that burst destructively, as well as high interest
rates for housing loans and other forms of consumer credit – all of these
significantly affect the economic life of working-people and can operate as
modes of exploitation. Keynesian inflationary policies, as well as the bursting of
financial bubbles, would now destroy not only the income from employment
of workers, but the real value of their savings as well. The economic situation
of working people, including their pensions after retirement, is more directly
vulnerable as a result of instability in the financial system.
Although the social foundation of the core of classic credit system must be
modelled as the internal mobilisation of idle money capital as between
functioning capitals, as analysed by Lapavitsas, we should note that the social
role and foundation of capitalist credit and finance are actually broader than
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108 • Makoto Itoh

this, and have a more direct impact on the economic life of workers and other
socially vulnerable groups, as exemplified in Dymski’s and Isenberg’s edited
volume, Seeking Shelter on the Pacific Rim: Financial Globalisation, Social Change,
and the Housing Market.11

(ii) The proliferation and changing forms of credit money

Marx writes that,

credit money springs directly out of the function of money as a means of

payment, in that certificates of debts owing for already purchased commodities
themselves circulate for the purpose of transferring those debts to others.
On the other hand, the function of money as a means of payment undergoes
expansion in proportion as the system of credit itself expands. As the means
of payment money takes on its own peculiar forms of existence, in which
it inhabits the sphere of large-scale commercial transactions. Gold and silver
coin, on the other hand, are mostly relegated to the sphere of retail trade.12

Commercial bills (such as bills of exchange or promissory notes used in

commercial credit), cheques on bankers, bankers’ bills and banknotes (including
central banknotes) are typical forms of credit money which emerged under
the gold standard system. In the classical capitalist credit system, credit money
served as a means of transferring commodities among capitals, but it did not
enter the sphere of retail trade, or transactions between capitals and workers.
Even banknotes, as Marx pointed out, ‘are simply the small change of wholesale
trade’, and tended to circulate only among capitals.13 The lowest value Bank
of England note, for instance, used to be 5 pounds sterling, which was too
much to be used for either wage payments or retail purchases.
Marx distinguished such credit money from ‘inconvertible paper money
issued by the state and given forced currency’.14 Unlike credit money, such
state paper money emerges out of the function of money as means of circulation,
easily flows into the general commodity circulation including retail trade,
and may cause inflation when over-issued.
In the course of the historical evolution of capitalism, especially following
the destructive shocks of World Wars I and II, as well as the great economic

11 Dymski and Isenberg (eds.) 2001.

12 Marx 1976, p. 238.
13 Marx 1981, p. 529.
14 Marx 1976, p. 224.
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 109

crisis of the 1930s, the classical gold standard system broke down and central
banknotes in most countries became inconvertible into gold. Inconvertible
central banknotes were made legal tender in capitalist economies in order to
economise on the domestic use of gold coins. Under the Bretton Woods
international monetary system after World War II, only the US dollar was
officially convertible into gold, while other currencies maintained fixed exchange
rates with the US dollar. After the breakdown of the Bretton Woods system
and transition to the floating exchange-rates system in 1973, inconvertible
central banknotes were delinked even more fully from gold money.
Inconvertible central banknotes are called managed currency. They are
issued in the form of bank credit given by the central banks to other banks
or to the government, and after their use to make payments flow back to the
central banks in the same manner as the classical convertible central banknotes.
However, their validity no longer relies on convertibility to commodity
money – gold – but is based on legal guarantees provided by the state, in
the same way as state paper money. Without having a gravitational anchor
in convertibility to a certain amount of gold, inconvertible central banknotes
easily tend to cause inflation, that is, a reduction in their exchange-value,
through over-issue, again in the same way as state paper money. Keynesian
theories held that the pace of inflation, or rate of loss of exchange-value of
inconvertible central banknotes, could be controlled through the deliberate
operation of fiscal and monetary policies.
Nevertheless, the complex mechanisms that enable inconvertible central
banknotes to circulate generally as non-commodity money, despite being
delinked from gold, and while maintaining a fair degree of stability, are deeply
related to a long historical process of growth of institutions and customs
surrounding the use of credit money in ways which would allow capital
accumulation to proceed. State power would not have been effective without
such historical and socio-economic preconditions in the process of making
inconvertible central banknotes into contemporary representative general
money. Current academic research on the roles of habits, customs and
institutions in the field of money and credit, as discussed in Lapavitsas’s
book, must directly or indirectly reflect the recent shift to a market economy
which has non-commodity money at its heart.
In this regard, it is surely desirable that Lapavitsas should trace in more
detail the theoretical implications of his treatment of money, credit and various
kinds of credit money (together with the roles of non-economic social factors)
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110 • Makoto Itoh

with respect to the contemporary capitalist market economy. On this, three

further points can be made here which are also of importance.
First, as Chapter 8 of our cowritten book attempted to show, a credit system
based on inconvertible central banknotes cannot always be managed politically
to maintain relative stability. Indeed, fundamental instability has increased
under contemporary policies of ‘managed currency’. Along with changes in
basic conditions for capital accumulation, we have experienced vicious inflation
in the 1970s, build-up of huge speculative bubbles in the 1980s and 1990s,
and the deflationary spiral characteristic of the Japanese economy during the
1990s and since. It has become apparent that monetary assets based on
inconvertible central banknotes may cause not only inflation, but also the
deflation which results from an acceleration in hoarding. Though psychological
changes in habitual attitudes, and the propensity to save or consume, are
certainly a factor behind such contemporary monetary phenomena, we must
still endeavour to analyse such situations more objectively in relation to
changes in the conditions of capital accumulation through the production,
circulation and financial spheres in both the domestic and the world markets.
Second, we have to ask how it has been possible for the US dollar to expand
its role as world (universal) money in the world market despite being delinked
from commodity money (gold) and without having been formally accorded
the status in international markets of forced currency, which it has in the US
domestic economy. Moreover, the dollar has come to play this role while the
USA has year after year accumulated huge amounts of both international and
domestic national debts. Is it possible, through some large-scale model of a
developed form of credit money, to explain the privileged position of the
USA, which is able to purchase goods and services in the global market using
its own inconvertible central banknotes – and thus piling up debts? How can
we explain the present relative stability in the exchange-value of dollar, despite
the ever-present danger of a collapse in its value as a result of the huge
accumulation of US international debt? What limits are there to the unique
global role of the US economy as both lender and consumer of last resort?
To what extent do these phenomena depend on customs, habits and
international institutional structures? Although Lapavitsas concentrates on
more basic theories of money and credit, his analysis of the interplay between
non-economic and economic factors within a contemporary historical-materialist
approach needs to be extended to such significant issues. In my view,
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Political Economy of Money, Credit and Finance in Contemporary Capitalism • 111

satisfactory answers to these questions have not yet been presented by any
school of economic theory.
Third, we are witnessing the proliferation of various kinds of quasi-money
or credit money, as well as the formation of large-scale transnational currency
unions, such as the euro. In this regard too, the impact of information
technologies on the capitalist market system has been profound. Credit cards,
pre-paid cards, electronic money, bank cards, and local community money,
such as LETS (Local Exchange Trading System) are obvious examples. Unlike
the classical credit system and credit money, discussed in Chapter 4 of
Lapavitsas’s book, most contemporary forms of credit money are no longer
restricted to transactions among capitals but are widely utilised by working
people in the retail market. The capitalist credit mechanism has extended its
operations to organise more fully the savings and borrowings of general
working people, as well as to promote retail sales, including digital internet
commerce, using personal computers. Most of these proliferating forms of
quasi-money or credit money are spontaneously created outside state power.
In this respect, they are unlike national currencies such as inconvertible central
banknotes, and testify to the essentially spontaneous and anarchic nature of
market, money and credit. Together with transnational currency unions, these
developments demonstrate a reduction in the power of the nation-state to
control the money and credit mechanisms of the capitalist market economy.
They help explain why traditional Keynesianism has lost so much of its
effectiveness and why a neoliberal belief in the rationality of free markets has
become seemingly a much more appropriate ideology for the contemporary
monetary economic order. It remains as an important theoretical task for us
to contest and overcome this powerful ideological tendency by use of the
perspectives of Marxian political economy, in co-operation with other currents
of heterodox economics. We have to undertake a sustained and objective
study of the role of historical necessity in the contemporary proliferation of
new forms of quasi-money and credit money, and we need also to explore
the future potential and the contradictions involved in such developments.
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112 • Makoto Itoh

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