BTW, there is confusion among some that the credit theory of money is incompatible with the chartalist theory, and that Randy Wray has made this mistake. IIRC Perry Mehrling asserted in a
review of one of Randy's Understanding Modern Money (1998).
Randy's paper,
Money, specifically states that money is debt, that is, a relationship of credit-debt. MMT espouses the credit theory put forward by Innes, in addition to the chartalist theory put forward by Knapp. They are complementary rather than contradictory. Let us see how.
A purely commodity money is denominated in real terms — amounts of wheat, copper, silver, or gold, for example, whose value is the market value in exchange. This amount may be used as a numeraire in exchange, and it also might be established as the unit of account either by custom and convention, or by law or dictat. The latter is called "fiat," meaning "let it be done," i.e., "make it [such]."
Fiat money strictly speaking is money issued at a nominal value (face value) established by the issuer. The token may be a commodity like silver or gold, but the face value at issuance is usually different from the market value of the commodity used in the token by the amount of minting cost and seigniorage that the issuer adds.
This nominal or face value of a unit becomes the unit of account established by the issuer, regardless of any underlying real worth as a commodity. Thus, a unit of account (nominal value) gets established by law (fiat). This is called chartal by Knapp.
Chartal money is a unit of account (value) that may be represented by various tokens (money things), such as tally sticks, metal coins or paper notes, — or the value may exist simply as accounting entries, e.g., in the records of central banks.
The MMT position is that money as a unit of account has traditionally been state currency whose nominal value as the unit of account in the jurisdiction of the domain in which it is issued is established by the sovereign through law or dictat. Increasingly, the unit of account used in exchange is not represented in the exchange by any money things. It's all done digitally by changing accounting records.
The money issued by the sovereign becomes the "debt" of the sovereign and the "credit" of the users of the currency as the sovereign's debt. The sovereign necessarily accepts its own debt in payment of liabilities to it, and the sovereign may also choose to accept only its own liabilities at its payment offices.
So the credit held by the user functions as a "tax credit." Since those with liabilities to the sovereign must obtain that which is necessary to meet those liabilities, chiefly taxes, there is demand created for the sovereign's tax credits. This demand, created artificially by the power of the sovereign, "drives" the currency.
There is no contradiction in money originating in debt, as Innes explained, and chartal money as described by Knapp. In modern economies, debt is generally denominated in the unit of account of the legal jurisdiction in which it originates, and currencies are freely tradable. So for all practical purposes, economies operate on chartal money that is also credit-debt.
