Henry Dunning Macleod and the Credit Theory of Money

Abstract

Spurred on by the bullion and banking-currency controversies, nineteenth-century British economists made great strides in understanding the workings of a sophisticated monetary system. Writers such as Henry Thornton, Thomas Tooke, John Fullarton, and John Stuart Mill advanced monetary theory beyond its roots in a rigid version of the quantity theory. These writers attempted, with no small success, to come to grips with the manner in which the widespread use of credit affects the behavior of an economy with a commodity money. From Thornton onward, all major figures in the British monetary debates recognized the pervasive use of credit. Yet even the most perceptive bankers and political economists labored under the burden of attempting to explain the workings of a credit system using a theory that presumed that commodity money was the primary medium of exchange in the economy.