Legal definitions of money and credit, by Alasdair Macleod

The title is dry but the article is not. If you don’t know the difference between money and credit, what’s happening in the world’s financial system and what’s about to happen will be incomprehensible. This is a great tutorial, from Alasdair Macleod at

At these times of growing confusion over the future of currencies’ purchasing power, it is time to remove all doubt in the definitions of the differences between money, currency, and credit. This article traces the history and legal background to these relationships.

Despite the failure of the Bretton Woods agreement in 1971 and the state propaganda that followed, the position is clear. Both historically and legally money is and remains metallic coin — principally gold — and the rest is credit. 

As a result of statist puffery of their fiat currencies, the public now wrongly believes it is fiat currencies that are money and that currencies have no price, except against each other. I show that this is factually incorrect. However, in financial markets legal money is always priced in legal tender, usually US dollar currency, when it should be the other way round. This inversion of the truth will turn out to be a costly error for those making this mistake.

In this article, I also show that the adverse consequences for prices from changes in the level of total commercial bank credit are significantly less than they are for changes in the level of central bank credit. Now that we are on the verge of a severe contraction of commercial bank credit, governments and their central banks are sure to respond by ramping up inflation of their currencies in a vain attempt to avoid deflation.

The consequences for fiat currencies are likely to be calamitous for them. 

That will be the penalty we all face for ignoring the wisdom and findings of the Roman jurors, thinking that we know better with our economic models, macroeconomic policies, and statist control of markets.

Over two millennia of their careful deliberations, it was the Roman jurors who thoroughly examined and properly defined the difference between money and credit, upon which all economics and modern banking depend. Current monetary and economic fashions are mere ephemera in that context.

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2 responses to “Legal definitions of money and credit, by Alasdair Macleod

  1. Bob:

    Great article! Thank you for posting it.

    It reminded me of one of our favorite books, Garet Garrett’s “A Bubble that Broke the World” – published in 1932. Specifically, the brief chapter on gold wherein Garrett states – in what is perhaps the greatest example of succinctness I have ever encountered on the subject: “The true meaning of it [the gold standard] is a convention and the faith of that convention must be kept not in gold but in credit.”

    He then further succinctly states: For this now is the modern function of gold – to limit the amount of credit that may willfully, irresponsibly be created and set free.”

    Alas, humanity is now to again be reminded of one of the lesson’s it seems to refuse to learn…….



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