We are now moving to section 2 of the Futurity chapter entitled “Release of Debt”. This section is about 20 pages long.
Here Commons starts by focusing on G.F. Knapp and his idea of a “pay community”. Georg Fredrich Knapp was a German economist who published an important book in 1905 titled “The State Theory of Money”. For Knapp money is not a commodity but an “institution” that allows for the creation and release of debt or liabilities. Commons calls him the German “Macleod”.
Common believes that the expansion of means and methods for the release of debt as a form of duty is the history of civilization. He writes that both Macleod and Knapp understood that the expansion of forms of debt release were an important part of the economic story. He writes that, “Capitalism is the present status of releasable debts, and Knapp's definition of means of payment is a special case of the general principle of the changes in means and methods that have been going on through changes in the working rules of civilization for release from debt. “ (Commons, 1934, pg. 459).
How does this relate to Knapps pay community, Commons writes that, “bank and its customers “form, So to speak, a private pay-community; the public pay-community is the State.”” What happens in this “pay-community” is that the members pay their debts to each other in “units of validity,” equivalent to “units of value.” They are “valid” because acceptable to the community, by which is meant that the community, as a whole, makes them valid by releasing debtors from further duty to pay” (Commons, 1934, pg 459-460).
Commons next addresses the issues of enforcement mechanisms used by pay communities. A private pay community may use moral or economic coercion to ensure enforcement. The state has these powers but further the power of physical coercion. Commons spends several pages considering the issue of the validity of a form of legal tender in regards to its ability to release debts or duties of performance from a private pay or public perspective. The private perspective is that of paying private debts to another person or going concern. The public pay perspective is based on the payment of taxes to the government. Commons believes that neither perspective is dominant and in fact over time the main question of which is the release of debt will functionally alter over time. This section is of interest to monetary scholars b ut need not detain us now.
Knapp provides an important advance over Macleod in thinking about the ability of “money” to act as an institution or working rule to distinguish debts and liabilities or duties. However, he was focused on the legal aspect of the pay community. He did not address the issue of economic value and to that we turn to Ralph Hawtrey in the next section.
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