Introduction:

One of the most striking features of world economic history is that the entire 1,700 year period before the eighteen century shows very limited economic growth, but is then succeeded by a period of sustained and rapid growth. GDP per capita (in 1990 international dollars) in England increased from an estimated $600 in year 1 AD to a mere $925 in 1650, while more then doubling to $2330 in 1850 before increasing ten fold to $23,777 in the 160 year period to 2010 (United Kingdom). This rapid growth in output per capita was matched by Western European countries such as Germany, France and Italy, which grew in the 1850-2010 period by factors of 14, 13 and 13, respectively. Output growth over the same period was also high in the colonial offshoots of the British Empire, with per capita GDP in the US, Canada and Australia increasing by factors of 16, 19 and 13 respectively (Maddison Project 2013). How did a society, after producing 1,700 years of relative stagnation, transform itself into a system with sustained and rapid economic growth?

Gunnar Heinsohn and Otto Steiger suggested an answer to this important question some 35 years ago (Heinsohn and Steiger 1981, 1983; Heinsohn 1984 [1982]) and contended that this distinctive growth dynamic was the consequence of a specific monetary system of production. They argued that money2 balances must be created in credit contracts and the requirement to repay money advances with interest implies that less money is lent than owed. Competition, wage labour and most importantly the requirement to produce a net addition to the money stock, act as a trigger for long-run economic growth. Capitalist economies3 are subject to a monetary growth imperative.