"PK endogenous money theory emphasizes that this linkage [connection the financial and real sectors] runs predominantly from credit to money to economic activity. The important feature is that credit is placed at the beginning of this sequence. This contrasts with conventional representations that place money first, as reflected in the standard textbook money multiplier story in which bank deposits are said to create loans" (Palley 2008, p.2).
In monetary theory of credit, money is usually defined as constituted of something real - hence real money or commodity money - while credit, as a substitute money, is created based on the real money. In this view bank merely intermediates money from surplus units to deficit ones; hence banks as financial intermediaries.
In credit theory of money, on the other hand, the essential task of bank is to create money through making loans. What is it then that bank loans out when money is created simultaneously with the lending? It is its own liabilities! In this approach money is essentially nothing but bank's liabilities.
Now, where does Marx's monetary theory fit in? It is conventionally accepted that in Marx money is logically prior to credit; thus monetary theory of credit. For example, in the initial chapters of Capital Vol.1 Marx defines money essentially as commodity money with intrinsic value; a metallic money is assumed in the analysis of the circuit of capital and reproduction scheme in Capital Vol.2 and of transformation of value into price of production in Capital Vol.3; it is only in Part 4 and 5 of Capital Vol.3 where credit system is discussed.
In particular, as Costas Lapavitsas has strongly emphasized in various places, it is shown in Capital Vol.2 that the credit system is structurally derived from the workings of the circuit of capital; more specifically, idle capitals regularly emerge due to the turnover times and will be lent out to other capitalists in search of profit opportunity; in this sense a pool of idle capitals is the foundation of credit system.
All these seem to suggest that Marx's monetary theory belongs to monetary theory of credit being incompatible with Post Keynesian type of endogenous money theory. According to this observation Marx's monetary theory would be rejected as invalid in the economy where credit money perform various functions of money.
However, this is not a proper assessment. In order to fully grasp Marx's theoretical system in its entirety we have to recognize that it is constituted of two different dimensions, i.e. method and theory. A very helpful place to look at for this is the chapter on simple reproduction in Capital Vol.2 where we find Marx's explanation why he assumed metallic money. It is worthwhile to quote.
"[The assumption of commodity money] is not made from mere considerations of method, although these are important enough, as demonstrated by the fact that Tooke and his school, as well as their opponents, were continually compelled in their controversies concerning the circulation of bank-notes to revert to the hypothesis of a purely metallic circulation. They were forced to do so post festum and did so very superficially, which was unavoidable, because the point of departure in their analysis thus played merely the role of an incidental point" (Capital Vol.2, p.290).First of all, methodologically, commodity money is a right starting point and the analysis should then proceed to credit money. This is according to the method of presentation which captures in thought the logico-conceptual development of the object of analysis from the abstract to the concrete; it is important to note that this process does not necessarily corresponds to the actual historical development. Marx emphasizes the importance of this method by alluding to theoretical tumbling-blocks Tooke and both Banking School and Currency School had to face because they adopted a false starting point, i.e. credit money instead of purely metallic money, in the famous classical monetary debate.
Another reason than method is a theoretical consideration to emphasize that the capitalist economy systematically requires the credit system. Marx demonstrates this by showing that the supply of commodity money, due to its physical limit, cannot grow in step with the growth of the entire system. By starting with metallic money Marx was able to demonstrate effectively that extended reproduction of capital requires credit money which will bring the system beyond the metallic barrior. Marx's theory which emerges at this place states that in capitalist system money cannot but be a credit money, which is issuer's liabilities.
From these considerations we have the following lessons on Marx's monetary theory: A distinction between method and theory is important; method of developing from the abstract (commodity money) to the concrete (credit money) on one hand and, on the other hand, theory of capitalist mode of production according to which credit system is a required condition for its extended reproduction. Once this is recognized we could see that both commodity money and credit money (as issuer's liabilities) perform an important role in Marx's monetary theory.
Recognizing these should be the starting point of any attempts to develop Marxian theory of money and credit.