Introduction
Hayek wrote, in what we interpret as a prefiguring of crypto currencies, that he found "more helpful for the explanation of monetary phenomena if 'money' were an adjective describing a property that different things could possess to varying degrees...Machlup for this reason speaks occasionally….of 'moneyness' and 'near-moneyness.'"*
Moneyness Example
Therefore, we must ask: if the nature of mediums of exchage is about degrees of moneyness, what kind of economic goods have the property of moneyness at a very high degree? Let's use the following example to answer that question.
Say I lend you 100 silver coins because your promises are solid.
1. You spend the coins on production/capital goods.
2. At the same time, I can go and spend your promise in consumer goods at a grocery store. I transfer your promise to the grocery store owner and I can take consumer goods as I see appropriate. Now you owe the 100 coins to the grocery store, not to me. No one should have a problem with that. I hope.
1.1 The capital goods seller spends the coins on new inventory.
2.1 The grocery store spends your promise on new inventory, by transferring the promise to a consumer goods producer.
1.2 The producer of capital goods spends the 100 coins on buying parts.
2.2 The consumer goods producer spends your promise on machinery/capital goods to produce more consumer goods....
See where it's going?
This is about trust. Your promises are as good as money. That's why I lend you the coins to begin with in our example.
The moneyness of credit is backed by present goods
We all use your promise above as money because you are producing goods and services that we need. Therefore, you are helping all that process. Your promise is as good as money, or near money.
If you were slacking off, no one would accept your promises to begin with. So the above process would not even get off the ground. The goods and services you continually produce back the moneyness of your promises. The moneyness of credit is backed by present and continually produced goods, not just by base money.
In a free-market situation, commercial banks that make productive loans do exactly this. However, commercial banks that make mortgage loans to unemployed borrowers, for example, cannot do that.
Conclusion
We should see by now that credit is transferable; therefore spendable and very high on moneyness. The reason why this is not a problem is because, absent an imposition by the bureacratic-state, the promises and credit that contain high degrees of moneyness are the promises from productive economic agents; not from random weak and new banks.
References
*Denationalization of Money
