Abstract

The Concept of Potential-Oriented Credit Policy. On a critical essay by H. G. Monissen

This article relates to a critical commentary published in this journal, in which H.G. Monissen expresses his views on the theoretical foundations of potential-oriented credit policy, a liquidity-theory conception for central bank policy. It is shown that Monissen’s criticism can be explained by a claim to theoretical exclusivity. Monissen postulates that monetary policy measures exert an influence via stocks of wealth and wealthstructure effects on nominal aggregate demand, and that hence evidence on causalities can be gained only from analysıs of a structural model which describes the interrelationships of the various items of wealth and their association with the instruments of monetary policy. Potential-oriented credit policy is a conception which assigns the central bank the task of controlling flows of payments. Underlying this is the view that flows are more easily controlled that stocks of wealth and that the existing credit-policy instruments are designed predominantly to influence money and credit flows. The intermediate objective of central bank policy is the flow magnitude of credit granting, which in turn, taking account of the dispositions of non-bankers, acts via the existing quantity of money and determines the magnitude of the volume of payments, which in its turn is related to the nominal aggregate demand. The concept is presented in condensed form. When considered in the light of systematic relationships Monissen’s criticism proves to be untenable