Collateral and Own Capital : The Missing Links in the Theory of the Rate of Interest and Money

Collateral and own capital have resurfaced only recently in economic literature as subjects of economic theory without, however, being understood as the premises for interest and money and, hence, any activity that is genuinely economic. This approach, which we have termed property economics, will be presented in sections 1. and 2. Economists' neglect of collateral and own capital is partly due to classical and neoclassical economics ignoring an eminent mercantilist author and his seminal contribution to the nexus between good securities and the creation of banknotes. It is also due to the neglect of the achievements of the founders of the theory of central banking, as will be shown in section 3. An even more decisive role for not comprehending the essence of interest and the creation of money is played by the nearly universal lumping together of property and possession as one and the same thing by economic schools of the past and present. This has led to the most perplexing results of (i) their dealing only with possession, which is confusingly labeled “property” and, simultaneously, (ii) their never touching upon the essence of property its capacity to be burdened and encumbered; that is, to be collateralised. This will be discussed in sections 4. (classical and neoclassical economics) and 5. (New institutional economics and Keynesian economics)