Mutual credit

Mutual credit, sometimes called multilateral barter, credit clearing is term mostly used in the field of complementary currencies to describe a common, usually small scale, endogenous money system.

The term implies that creditors and debtors are the same people lending to each other, but there are several nuances. Some think of mutual credit as a type of currency but this can be problematic because no currency or money is 'issued' in the sense that most people would understand it. Cash is very rarely 'issued', accounting normally taking place on a ledger, therefore it could also be called 'ledger money', a money system, accounting for exchange or credit clearing system. The accounting is explained under multilateral exchange.

The practice of multilateral exchange can be a mere convenience, but once a common unit of account is agreed, the extent to which members can draw credit limited, a mutual credit system quickly resembles a money system. However mutual credit is not one of the recognised Schools of economic thought, perhaps because its egalitarian implication makes it politically unacceptable.

Even so Keynes proposed a mutual credit system called International Clearing Union instead of a gold standard but it was rejected, likely because equal relations and payable debts would have reduced American leverage over the global economy.

The ideas can however be found in Mutualism which does value equitable exchange and cooperation.

In the mainstream economy, money is regarded as a scarce commodity, which is rented out many times simultaneously by those who have it, to those who don't. This practice leads directly to hoarding and thus scarcity of money, to a growing wealth gap, to the poverty trap, the Boom/bust cycle the Economic growth 'imperative' and many other seemingly eternal social evils.

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