Mutual credit

'Mutual credit' (sometimes called 'multilateral barter' or 'credit clearing') is a term mostly used in the field of complementary currencies to describe a common, usually small scale, endogenous money system. 'Mutual credit' (sometimes called 'multilateral barter' or 'credit clearing') is a term mostly used in the field of complementary currencies to describe a common, usually small scale, endogenous money system. The term implies that creditors and debtors are the same people lending to each other, but there are several nuances. Some think of mutual credit as a type of currency but this can be problematic because no currency or money is 'issued' in the sense that most people would understand it. Cash is very rarely 'issued', accounting normally taking place on a ledger, therefore it could also be called 'ledger money', a money system, accounting for exchange or credit clearing system. The accounting is explained under multilateral exchange. The practice of multilateral exchange can be a mere convenience, but once a common unit of account is agreed, the extent to which members can draw credit limited, a mutual credit system quickly resembles a money system. However, mutual credit is not one of the recognised schools of economic thought. Even so, Keynes proposed a mutual credit system called International Clearing Union instead of a gold standard, but it was rejected. The ideas can, however, be found in mutualism, which does value equitable exchange and cooperation. In the mainstream economy, money is regarded as a scarce commodity, which is rented out many times simultaneously by those who have it, to those who don't. This practice leads directly to hoarding and thus scarcity of money, to a growing wealth gap, to the poverty trap, the boom/bust cycle the economic growth 'imperative' and many other seemingly eternal social evils. Mutual credit accounting emphasises the importance of balanced exchange over the importance of property owners getting something for nothing. When every credit is matched by an equal and opposite debt, which is to say when there is no money and no interest, then supply equals demand a priori, and all the problems of economic equilibrium go away. Similarly, the very politicised question of the size of the money supply is solved because the credit is perfectly elastic; it is available in whatever quantity the debtor is trusted to repay. Without interest on deposits, there is no reason to hoard credit – all credit is treated as a short-term loan between trusted partners, though many systems make provision for default similar to insurance.