John Cyriac’s Blog

My nine year old twin boys asked me the question - What is money really? Ofcourse they wanted to see if there is a simple way to buy more toys and sweets.

I am trying to answer 3 questions. 1) What is money? 2) Who creates money? 3) Who controls money and how they control it?

What is money?

Money is something with value. Everyone who uses a particular form of money must agree on that value, and agree to respect that value. Once a group of people agree on something to use as money, and on the value it carries, then a whole range of possibilities open up. Some uses are obvious, and were perhaps among the reasons why money was created. Others are less obvious, and reveal how different societies approach money in different ways. That is a philosophical definition of money.

Now let us illustrate that philosophical explanation with a real life situation.

You all know about the barter system. A fisherman exchanges fish to get wheat and vice versa. Barter system got into problems later, with its complexity and usage. People started using iron and other materials. But imagine the transaction with tonnes of iron to buy a piece of land. Gold was an easy choice. There is record of gold coin usage in ancient Greece during 560 BC. But again, we humans want simpler to use commodities. Then people started keeping their gold with goldsmiths and exchange the receipt they got.

Who creates money?

Later the goldsmiths realized that people seldom come back to collect their gold. So they started printing more receipts than there is gold. So for example, if there was 100 pounds worth of gold, instead of printing 100 pounds of receipts, they printed 1000 pounds of paper. Then they started giving out that paper to people and started charging interest on it. These goldsmiths or money changers are currently called banks. But today, truth is those receipts or bank notes are printed without those deposited gold. It is just paper and the value of a country’s currency is dependent on the public confidence of that country’s productivity. We as a society accept that the paper has value and we do transactions. Now you know who creates money.

How they control money?

The central banks create money and control money supply with interest rates. The amount of money in the economy (money supply) dictates the degree to which capital can be employed to employ people and generate economic activity (work in simple terms).

We live in a debt based society. Debt is used to control nations and the world itself.

What is the meaning of government debt?

Well, the government owes money to the bank. Have you considered how will it pay back the debt? It has to collect taxes and pay back.

If I own a house worth 100K and I owe the bank say 80K pounds, do you consider my situation okay? Now what if I own a house and I owe the bank say 1 million?

American national debt is more than 8 trillion USD. Every year there is a deficit of more than 800 billion in the US budget. It means, with every year passing, the American people owe 800 billion more to the Bank.

Some may say that wealth is siphoned off from the majority to the minority using the mechanism of the banking system - I don’t want to comment on the right or wrong of this view. If it didn’t work like this and on average we each had 2 kids (2 per couple) we would have a static population, and everyone would fairly quickly own their house and have limited motivation to work hard - so the debt based system does create the motive to make people work….