Money, Money, Money…

We all want money. We all have some understanding of money. But there are a lot of mysteries around exactly how money is created in the economy. You don’t have to look very hard to find people arguing that paper money not backed by gold is a scam and that that our monetary system is destined to collapse into hyper inflation at some point.¬†All money is debt they warn.

This article attempts provide some answers, and some reassurance, regarding money.

What is Paper Money and how is it created

What is electronic money and how is it created


What are the historical origins of “money” and what exactly is “money”?

Money is most often said to have originated as a convenient medium of exchange arising out of barter economies. However, historical research has not been able to find evidence that such a barter society ever existed. Instead, it seems that primitive societies were based primarily on sharing and gifting and not barter.

Conventional theory holds that money is a thing – a commodity chosen to serve as a medium of exchange to facilitate the swapping of goods and services. It is also commonly supposed that credit and debts were “invented” sometime after the invention and use of money.

In reality, the essence of money is to keep track of debts.

Rather than barter, the first commercial exchanges may have been in the form of debt as when one “cave man” said to another. “Your hunt today was most successfull, while mine yielded nothing. Lend me two of those rabbits you caught and I will replace it with three when my hunt is successful tomorrow”.

Money has long been said to posses three characteristics


A medium of excanhe

A store of value

A unit of measure

It may be the last that is the most important.

Money is a special type of credit or debt. Monetary exchange is the clearing or settling of debt.

paper currency money is tokens that represent an underlying credit relationship.

Conventional wisdom is that credit is the lending out of the money commodity.