... the security of their promises to pay is accepted generally enough for it to be possible to make payments in those promises.
I find it hard to accept that payments can be made in promises to pay. It is illogical. Yet, this is how we view and talk about the economy. We consider payments made mainly in banks' promises to pay, although we do accept another way to make payments which we call barter.
Merriam-Webster defines barter (verb) as follows:
to exchange things (such as products or services) for other things instead of for money
In a barter system, payments are made in goods or services. Some people contrast bartering with the use of money as a medium of exchange and claim that a system where sellers acquire credits -- but not money -- which they can later use to buy goods or services is essentially a barter system. To me, this is too big a stretch from the classical definition of barter. For instance, Adam Smith, writing in Wealth of Nations (1776) of a situation where paper money would lose its value after the loss of the gold stock of a nation, says:
The usual instrument of commerce having lost its value, no exchanges could be made but either by barter or upon credit. (Book II, Chapter II)
It is good to see that Smith, though often blamed for having suggested that money emerged from the difficulties (see Jevons' famous "double coincidence of wants") related to a barter system, does recognize credit as something which enables exchange, and which he separates from barter.
Here comes my main point. What we all must agree upon is that a seller who, in a transaction, extends credit doesn't receive a payment. From this it must follow that the buyer involved in the transaction doesn't make a payment.
If accepting a bank's, or anyone else's, promise to pay is not extending credit, then what is?
I, too, have grown up thinking that payments are made in money, that bank deposit transfers are money transfers, and so they constitute payments. But I'm ready to question all this if it helps me understand better how the economy works. Having now, for some time, entertained the thought that one cannot make payments in money *, I have come to believe strongly that it must be so. And not only that, but actually everything seems to make more sense when viewed through this "new lense". Although I have always considered myself a contrarian, I must admit that here I have exceeded myself.
* What I in the current post say about commercial bank deposits, I extend to central bank notes and deposits as they, too, are "promises to pay". See my earlier post for more information on this wider perspective.