The contributions of Knapp and Innes to the Chartalist Theory of Money

Abstract

The relationship between money and credit is analyzed differently by Orthodoxy, which, in general, analyzes it using the commodity money approach; and Heterodoxy, which, at large, adopts the Chartalist approach. Thus, orthodoxy postulates a monetary theory of
credit; and heterodoxy, a credit theory of money, where money is, by nature, credit. The State uses its sovereignty to define what will (or will not) be accepted as money in the payments of transactions due to itself. And Knapp’s contribution in structuring a theory of state money meets Innes’s credit theory of money, supplying an alternative theory of money.