How the US Economy Changed the Nature of Money

The Occupy Wall Street movement and most of academia love to wail about the evils of capitalism. Economist Richard Duncan reckons it’s a bit late for that. About 100 years too late.

Capitalism died a grisly death in 1914 and 1939. What makes Duncan’s take unique is how he sees its replacement. It’s called ‘Creditism’.

But first, how did Capitalism fall? It fell when America entered into the two World Wars. The government intervened heavily in the US economy to mobilise and fund the war effort. Like all of the government’s temporary measures, they turned out to be permanent. The US economy never returned to normal. Ever since, war and Capitalism’s replacement seem to be inextricably linked.

Creditism is all about keeping the amount of credit growing, explained Richard Duncan. That’s because credit growth looks a lot like GDP growth, wealth and prosperity. At least while it’s growing fast enough. If you can maintain this growth, the faux economy is surprisingly real.

Under Capitalism, the economic growth was driven by investment and savings. More specifically, savings funded investments which were invested in productive assets. Yes, that is as slow and tedious as it sounds. Today, the US economy is driven by credit creation and consumption. Credit comes out of thin air and finances consumption. But that’s a temporary measure at best. And it creates a dangerous amount of instability.

The first experiment with Creditism Duncan covered was the roaring 20s, after the end of the First World War. After the wars, household credit growth took over from the government’s war spending. But the credit boom that gave us the roaring 20s left us with the first type of hangover we’ve seen periodically since. The hangover when debt stopped growing is now known as the Great Depression.

Skipping a few episodes in between, if you compare the experience of the 20s and 30s to today, Duncan pointed out it follows the script nicely:


  1. Gold Standard Breaks Down (1914).
  2. Credit Boom: The Roaring 20s
  3. Boom Leads to Bust When the Credit Can’t Be Repaid.
  4. Banking Collapse.
  5. International Trade Collapses.


  1. Bretton Woods Breaks Down (1971).
  2. Credit Boom: Global Economic Bubble.
  3. Boom Leads to Bust When the Credit Can’t Be Repaid.
  4. Banking Collapse.
  5. International Trade Collapses

There are some key differences too. For example, Duncan argues that this famous quote from Austrian Economist Ludwig von Mises is no longer entirely correct.

There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises, 1949

Because we now live in a world of fiat currencies, the collapse brought about by credit expansion can be delayed almost indefinitely. Almost.

The problem with delaying the inevitable is that it gets worse when it does happen. When credit growth does slow, the collapse could be severe:

  • Most of the world’s banks would fail, destroying most of the world’s savings.
  • The Economy would implode. GDP contracted 46% during the Great Depression.
  • Unemployment would skyrocket (25% during the 1930s).
  • Trade barriers would go up. Globalisation would collapse.
  • The developed nations could no longer afford welfare.
  • The US could not maintain its global military dominance.
  • China’s economy would implode.
  • Widespread starvation, world chaos and war.


The most interesting part of Duncan’s ideas is that he’s put a number on his predictions. Credit must keep growing at 2% in real terms to prevent collapse in the US economy. That’s about $2.4 trillion adjusted for inflation at 2%.

Where did Duncan get his 2% from? Well, historically, every time credit growth fell below this level, a recession followed.

So who can borrow that much money to keep credit growing? The US government’s deficit is falling. And the private sector isn’t filling the gap sufficiently.

Duncan’s hypothesis is that the US government will ramp up fiscal and monetary stimulus at the slightest sign of trouble… indefinitely. There is plenty of room to do both. The world is going through deflation from technology and globalisation, and Japan has shown how US debt to GDP could double or more.

So how do you invest? Well, for now you can’t fight Creditism. It could last far too long. But be ready for when it ends.


Nick Hubble+
for Markets and Money

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Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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