What money is

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I had another date with my iPad over coffee and this was what resulted:

Screen Shot 2016-08-10 at 08.12.59

In a more conventional layout it looks like this:

  • What money is
    • Money is a promise to pay
      • It is debt
    • It has never been anything else whatever physical token is used
      • A £ note is worthless but for the promise written on it
    • Anyone can create debt that can be traded - but most of it only amongst a very close circle of intimates - and even then unreliably
    • Only two types of organisation are generally trusted to pay
      • Banks and the government
      • And banks are only trusted because the government regulates them and guarantees their deposits
      • So ultimately only the government's promise to pay is trusted
    • Governments are trusted to pay because
      • They can always print more money if need be - there is no doubt they can always pay as a result
      • Their promise to pay is backed by their ability to tax - so the resort to printing is not usually needed
      • That means all trust in money in an economy has to be backed by a sound tax system
      • The difference between a strong economy and a weak one is its ability to tax effectively and in large enough amount to ensure it can back its promise to pay
      • That is why too small an economy is a threat - money faces the risk of becoming worthless when the government can't command enough resources to fulfil its role
    • But to avoid doubt
      • Printing money is not the same as making money
      • Printing money happens in two ways
        • The government spends
        • Banks lend (backed by government regulation that makes it safe for people to trust them)
        • Printing can mean a figure in a bank account that is wholly electronic as well as physical notes and coins
      • Money is made
        • By people exchanging goods and services with each other
        • Money that is made cannot be unmade, but it is spent
      • Printed money is cancelled to prevent too much being in circulation and inflation resulting by
        • Cancelling the impact of government spending with taxation
        • Loans being repaid
        • The money repaid is not recycled: it is destroyed. Notes and coin are the apparent exception but they are only 3% of all money balances. All other money is cancelled and even notes only last a year on average so printing has to be continuous or it too would disappear
    • A summary
      • Money is a government backed promise to pay that is only of worth because it alone can tax