Tuesday, November 01, 2005

Krumm, Paul . "HOW MONEY IS CREATED, DISAPPEARS, AND WORKS." How Money is Created. 02 Nov. 2005 http://www.vantagequest.org/trees/money.htm

The matter of money creation is poorly understood. There is a common misconception that banks or governments create money. Governments only borrow money into existence from the banks. Banks can and do manage and redistribute money and wealth. Only people and natural resources represent potential wealth. Only people can, by their labor, produce useful wealth, which can be traded, either 1) directly by barter, 2) thru the use of currency, or 3) thru the creation of money. Remember, all people who buy or sell, i.e. are producers or consumers, are traders.

Money is created when a trader makes a commitment, by buying goods or services from other traders, to place goods or services in the marketplace of equal value in the future.

In making purchases, traders borrow against their future production if they do not currently have a trading surplus. Money is created as evidence of that debt. Putting goods and services back on the market repays the debt, and extinguishes the money. In other words, money is borrowed into existence, and is extinguished as the loan is repaid. The effective lender, or guarantor of a loan is all the traders who trade with the borrower‑‑in short‑‑the community; the market.

This is how money is created, and extinguished. The stability of a money issue, then, is only tangentially related to any assets that might guarantee it.

Comments: This tells me that money is not created by Governments or banks.

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