The paper presents a financial approach to monetary analysis that links the credit and state theories of money. A premise of the functional approach to money is that "money is what money does." In this approach, monetary and mercantile mechanics are conflated, which leads to the conclusion that...

Schularick and Taylor (2012) documented a sizeable increase in the ratio between credit and broad money since the end of WWII, which they interpreted in terms of a progressive disconnect between the two aggregates. I show that this interpretation is incorrect, since, as I demonstrate...