CHAPTER 23
MONEY AND FINANCE

WE must now examine the influence of the monetary system upon accumulation. Our model economy has evolved (we will suppose) beyond the stage of paying the weekly wage bill in nails.1 Certain highly respected banks have long been established which cater for the monetary needs of the system.2

The banks have to observe certain rules of the game. In reality these have been evolved in a complicated legal system full of anomalies and fossils from the past, and are regulated by public institutions such as the Bank of England or the Federal Reserve System. To make our analysis both as general and as simple as possible we will assume that our banks behave in the proper manner without specifying any particular form of discipline.

In reality the forms of borrowing, and therefore the types of titles to wealth represented by the obligations of debtors, are infinitely various, but we can exhibit all the main features of the capitalist financial system while making use of a few sharply distinct types. We shall assume that titles to wealth consist only of notes, bonds and bank deposits, and that there are only three kinds of borrowing -- borrowing by entrepreneurs from the banks against bills; borrowing by entrepreneurs from each other (we have not yet introduced rentiers into the model) against bonds, which may be purchased at second hand by the banks, and borrowing by the banks from entrepreneurs against deposits.

We shall introduce these forms of borrowing successively, beginning with notes issued against bills. In order to keep a

____________________
1
Cf. above, p. 27.
2
In reality also banks may take some part in entrepreneurship, but we will assume that there is a strict separation of functions.

-225-

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