At its most basic level, finance is simply bookkeeping — a record of money obligations and commitments. But finance is also a form of planning — a set of institutions for allocating claims on the social product.

The fusion of these two logically distinct functions — bookkeeping and planning — is as old as capitalism, and has troubled the bourgeois conscience for almost as long. The creation of purchasing power through bank loans is hard to square with the central ideological claim about capitalism, that market prices offer a neutral measure of some preexisting material reality. The manifest failure of capitalism to conform to ideas of how this natural system should behave is blamed on the ability of banks (abetted by the state) to drive market prices away from their true values.

Somehow separating these two functions of the banking system — bookkeeping and planning — is the central thread running through 250 years of monetary reform proposals by bourgeois economists, populists, and cranks. We can trace it from David Hume, who believed a “perfect circulation” was one where gold alone was used for payments, and who doubted whether bank loans should be permitted at all; to the nineteenth-century advocates of a strict gold standard or the real bills doctrine, two competing rules that were supposed to restore automaticity to the creation of bank credit; to Proudhon’s proposals for giving money an objective basis in labor time; to Wicksell’s prescient fears of the instability of an unregulated system of bank money; to the oft-revived proposals for 100 percent reserve banking; to Milton Friedman’s proposals for a strict money-supply growth rule; to today’s orthodoxy that dreams of a central bank following an inviolable “policy rule” that reproduces the “natural interest rate.”