ABSTRACT OF PAPER
Title: Filiations between Henry Thornton, Ralph Hawtrey and John Richard Hicks on Money and Credit
Author: Brillant Lucy
John Richard Hicks analyzed credit before money both in Critical Essays in Monetary Theory (1967) and in A Market Theory of Money (1989). He considered having neglected the theory of credit in his previous writings. Notably, in Mr Keynes and the Classics (1937), where he put the emphasis on the market for cash balance and the motives of the demand for money, and left aside the money market and the clearing functions of banks. Existing literature already underlined Hicks’ interest to credit and money in the sixties, such as Axel Leijonhufvud (1984, p.26), Giuseppe Fontana (2009, p.73) and Jean François Goux (1990). However an analysis on Hicks’ influences seems to be missing, while he underlined several times the contributions of Hawtrey’s and Thornton’s on credit and money. This paper establishes a link of filiations between Thornton, Hawtrey and Hicks on the theory of money and credit. The plan is fourfold. The first part analyzes how the market creates its own circulating medium. Credit enables merchants to trade between them. Without money, goods circulate thanks to bills, which reflects indebtedness from a merchant to another. In the second part we introduce money, which enables to pay and cancel debts. We also present Hicks’s theory that we label the “two sphere of circulation” in which money and credit are distinguished. The third part is about the role of banks as a dealer of options. Banks finance merchants by selling or buying options. Options enable merchants to synchronize receipts and payments, and by this way banks supply liquidity to merchants. The fourth and last part underlines the role of the money market and the central bank. The money market provides liquidity to banks when selling bills against money. In this part we also study the necessity for the central bank to manage credit in order to control its instability. Thornton, Hawtrey and Hicks advocated discretionary policies.
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