Why All Money Is Debt

Why All Money Is Debt

October 13, 2020 0 By aure

Tl;dr: All money in the economic system is borrowed, and must eventually be returned to the bank.

Let’s imagine a village in which live a baker, a tailor, and a butcher.

Each of them makes three pieces of their goods daily. The butcher makes three steaks, the baker makes three pieces of bread and the tailor sews three suits.

How are they going to exchange these goods with each other?

Here’s how.

Originally, no one has money. Money arrives when it is printed and subsequently lent to a borrower, in our case, the baker, the butcher, and the tailor.

Indeed, the baker has bread, the butcher has steaks, the tailor has suits, but none of them have money to buy the goods of the other.

Therefore, for the sake of the example, let’s say they decide each borrow two euros.

With his two euros, the baker will buy one suit for one euro and one steak for one euro. He now has spent all his money. The tailor and the butcher now have every three euros, two that they borrowed, and one, coming from selling their goods to the baker.

But soon, the tailor goes spend one euro at the baker, and one euro at the butcher. The baker and the tailor have each one euro, and the butcher has four of them.

Eventually, the butcher goes spend one euro at the tailor and one euro at the baker.

Results: each inhabitant spent two euros that they borrowed to acquire two goods they did not produce, and each inhabitant sold for a total of two euros of goods.

Everyone has therefore two euros.

At the beginning of the situation, they had two euros that they borrowed and three pieces of the goods that they make.

In the end, they had two euros of debt, two euros of income, and a piece of each product they don’t produce, and two pieces of goods that they produce less than they had at the beginning.

Now that they have sold their good and bought other goods, they can take their two euros of income and go to the bank where they can reimburse their debts and go back to their shop.

The end.

All Money Is Debt

Money was invented to simplify the exchange of bread, steaks, and suits.

Instead of exchanging bread against steak, we exchange them both against money, it is easier.

From a purely economic standpoint, the end goal of money is its own disappearance.

Money, conceptually, eases the exchange of goods, and when there are no more goods to exchange, it should be refunded.

All money must eventually go back to the bank. This is why money is debt.

What matters most, at the end of the day, is what is produced, and that what is produced be exchanged against something else.

Money allows the exchange of goods produced and must eventually go back to the bank.

Photo credits: Photo by Sharon McCutcheon on Unsplash