wealth by their loans. To maintain this conviction, the State targets some rate of growth of the banks’ own net wealth, which explains the origin of banks’ rather unchecked power to determine the effective rate of interest and the rate of mark-up firms have to attain (Parguez 1996, 2000a). At the onset, banks and State are intertwined. The power of banks is always a power bestowed on them by the State. The State therefore must impose financial constraints if it wants to maintain the value of money. Since the State allows the banks’ debts to become money, it has the power to create money at will for its own account to undertake its desired outlays. The endorsement of bank debt means that it is convertible into State money. In the modern economy, State creates money through the relationship between its banking department, the central bank, and its spending department, the treasury. State money is created as deposits or debts are issued on itself by the central bank. State money obviously has the same value than bank deposits because of the financial constraints banks imposed on borrowers and therefore on employment, which includes the rate of interest and the rate of mark-up. The power of banks to issue debts on themselves is the outcome of evolution of debtor–creditor relationship (Innes 1913). As soon as a society escapes from the despotic command stage, production is sustained by a set of debt relationships. Debts of the credit-worthiest units begin to be accepted as means of settling debts resulting from acquisitions. Soon there are units, which are so credit worthy that their debts are universally accepted as means of acquisition, at least within a given space. When they specialize into the issue of debts on themselves, it is tantamount to deem them banks. There is now a new major question: how could modern banks evolve out of a complex debt structure, which is Victoria Chick’s ‘mystery’? Answering this question is to explain how the banks’ own debts can be homogeneous by being denominated in the ‘right’ units, in which real wealth is accounted. There are only two alternatives: the first is the solution of Menger (1892), according to whom the banks’ existence would spontaneously evolve out of a pure market process without any State intervention; the second is to explain the banks’ existence by the State intervention (Parguez and Seccareccia 2000). The Mengerian alternative is irrelevant because it is tantamount to some Walrasian tâtonnement. The second alternative imposes that money cannot exist without the support of the State as the sole source of legitimacy. It is the State which bestows on the banks’ debts the nature of money by allowing banks to denominate in the legal universal unit, in which its own money is denominated. State money is universally accepted by sellers to the State and firms because they are certain of the ability of the State to increase real wealth by its expenditures
