Home / Economics / Friends and Strangers: A Meditation on Money

 

I start my meditation with a true story that will serve as a parable. On his 21st birthday, the nature writer Francis Thompson was presented by his father with a bill for all the expenses of his upbringing including the costs of his birth and delivery. Francis paid the bill, but he never spoke to his father again. This story is recounted in David Graeber’s Debt: The First Five Thousand Years, an excellent account of the history of money. Yet Graber titled his book “debt”; did he just get it wrong, or did he uncover the essential nature of money?

We are immediately repelled by this story, yet at the same time, we have to concede a strange kind of justice to it. There is no doubt that the father was correct to point out to his son the obligation that he had, but in quantifying that obligation, he converted it into a debt, for that is the difference between an obligation and a debt: an obligation becomes a debt when you can put a number on it. “I owe you one” is an obligation; “I owe somebody $10″ is a debt. Obligations bind people together even after they have been “paid.” But debts bind us only for as long as the debt exists. The relationship dies on payment of the debt. We might say that obligations bind us together, while debts drive us apart. By quantifying the obligation, Thompson’s father offered him the opportunity to dissolve it, to discharge it, and in doing so to end their relationship; his son took the offer and was no longer his son.

The economists tell us a neat story about the development of money. The primitive world, they tell us, begins in barter, develops in money, and matures in credit systems. The problem however, is that the historians and the anthropologists have been telling the economists, and telling them for over 100 years, that they can find no record of this development; in fact, the actual history seems to be just the opposite: first comes credit, then money, and finally barter systems. Widespread barter systems only come about after the collapse of monetary systems, and even then money is still used as a unit of account, as a way of equating dissimilar items.

Economic life begins in the family and the village, and in these structures, there is no accounting for debt. Rather, there are long chains of mutual obligations. In general, people do not barter goods; these are gift economies where each person’s surplus freely circulates throughout the village and the family as gifts. The fisherman, when he wants a pair of shoes, does not, as in the economists’ myth, search out a cobbler who wants some fish. Rather, he freely gives away his surplus fish, an act which gains him honor in the village; he is a man who can contribute to the village, and therefore worthy of honor. Perhaps some woman will notice that he is wearing tatty moccasins, which is not appropriate for a man of honor. She will undertake to make him some moccasins and thereby gain honor for herself. In village life, “honor” is the coin of the realm, and the economic system aims at circulating goods in such a way as to bind the members of the village together in a long chain of mutual obligations.

Barter does not work for two reasons. The first is that natural goods mature in due season. This means that for most of the year, the farmer has nothing to trade with the hunter save his promise to pay when the crop comes in. The second is that even simple production takes place in many steps and stages and over a period of time. Until the work is complete, there are no tradable goods, only a work-in-progress. This cannot be financed by barter, but only by a promise to pay when the work is completed and the product is sold.

Some barter does take place, but only with outsiders, with strangers. With visiting tribes or wandering strangers, there will often be an exchange of gifts that is indistinguishable from barter. The reason for this is obvious: since they will not meet again, or will meet only at odd intervals, the exchange must be immediate, and if honor is to be maintained, the gifts must be of equal value.

Money could not purchase anything because there was nothing to buy; there were no markets. Again, this was not because villagers are ignorant of markets, but rather because they made deliberate efforts to prevent the formation of markets, to bind the village together in long chains of mutual obligations. But such efforts are impossible with the growth of the village into the town and the city. When most of the people you meet are strangers rather than friends, the whole idea of the gift economy becomes impossible. Still, the idea of the obligation never disappears because society can never be anything more than a long chain of mutual obligations.

And herein lies the real power of money: it coordinates the actions of millions of strangers. Our lives are critically dependent on the actions of others; thousands of people contribute daily to our well-being, and all but a tiny fraction of them are strangers to us. How shall we acknowledge our debt to them, and they to us, except by the medium of money? Money then, is not so much a medium of exchange as a record of the obligations we have to each other, a series of debits and credits. A dollar in our pocket is at once the symbol of the labor we have performed for others, and an acknowledgment of the debt they have to us. Our dollar is a visible credit, a claim on that portion of all the goods and services that are being offered for sale. It is a token of exchange only by being the symbol of the debt.

And the history of money bears this out. Money existed as a unit of account for debts for nearly two millennia before it existed as coins and currency. As early as 3500 BC, Babylon developed as a sophisticated society with great cities, and all without the use of money, or at least without the use of currency. Currency would not begin until about 700 B.C. in Greece. In the great temples and palaces of the Babylonians (which served as the banks) we find extensive commercial records preserved in cuneiform tablets. This unit of account was the gur, the measure of barley that constituted the monthly ration, or it was the Shekel, a weight of silver whose value was arbitrarily set to the gur. Domestic debts were computed in gur, while foreign trade was conducted in silver that the temples advanced to the merchants. Debts were paid in real goods, which might be silver or barley or any other worthwhile product.

The use of money introduced something completely new into economic life, namely the invention of interest. Interest most likely began as a way of participating in the profits of the merchants. The Temple advanced silver to the merchants, and received interest as a convenient way of participating in profits. No arguments arose about how much profit was made and what the Temple’s share ought to be; the Temple’s share was fixed in advance. But what likely began as commercial loans, quickly spread to domestic loans; that which proved beneficial for Shekel debts proved disastrous for the barley debts. Farming is a hazardous occupation, and crop failures are inevitable. Debts piled up, and large parts of the population sank into debt peonage and slavery, destabilizing both the economy and the social order. In order to remedy this, the kings would, from time to time, declare a debt amnesty, canceling all the barley debts (but not the Shekel debts) and freeing the slaves. It is noteworthy that the first written use of the word “Freedom” occurs in one of these amnesty proclamations. The cuneiform symbols for “freedom” actually mean “return to mother,” signifying the return of the slave to his family. The famous Rosetta Stone is also a record of one of these amnesties. It became the custom that every king would begin his reign with a debt amnesty, and these amnesties became the “Jubilee” of the Hebrews when they returned from the Babylonian captivity. Ironically, the Jubilee was more favorable to lenders than the older Sabbath codes in Deuteronomy, which mandated a debt amnesty every seven years.

Usury was the bane of the Mesopotamian kingdoms, but in the amnesties they recognized the communal nature of society; while maintaining a strict commercial order, they recognized that debts could not multiply without it being the end of all social order. Usury was also the great social evil of the Roman Empire, as more and more farms disappeared into the great Latifundia, the estates of the aristocrats who were able to seize the land of the citizens who were off fighting Rome’s extensive wars. Daniel Graber notes that the Roman solution was not to declare amnesties, but to throw money at the problem. The wealth of the provinces poured into Rome to create a vast welfare state that demoralized the people while leaving the power of the aristocrats intact.

Rome and Greece were money societies where usury reigned, and the poor became, increasingly, the slaves of the rich. But neither slaves nor state dependents made good soldiers, and the armies became not so much a group of citizens defending their homes, as a group of professionals engaging in a trade. It took vast amounts of coinage to support these armies, and vast amounts of taxes or plunder to support the army; Alexander’s army of 120,000 men required half a ton of silver each day for their pay. Money and militarism went together. Basically, the government issued coins to pay their debts, and then demanded them back in the form of taxes. This set up a circulation of coinage which, as a by-product, set up the kinds of markets that we have today.

With the collapse of the Roman Empire in the West, society reverted to credit systems. There was coinage to be sure, but its value was not fixed, nor its metallic content nor purity. Kings would routinely “cry down” the value of their currency in order to dissolve their debts. This was actually a form of taxation in an era that did not have much in the way of taxes, and worked rather well so long as it was not abused. But much of commerce was carried on simply as credits and debits, often recorded in the form of tally sticks. A tally stick was a bit of hazel wood upon which a debt was recorded in the form of notches; the stick was then split in half. The creditor’s half was called the “stock,” which made him the stockholder, and the debtors half was called the stub. The stock would circulate as money, and as long as the stub remained it was impossible to change the debt.

Tally sticks circulated in England for 500 years. It is worth noting that when the Bank of England was founded, in 1694, one quarter of its capital was in the form of tally sticks. But the bankers wished to monopolize the creation of money, and immediately set out on a long campaign to get the tally sticks outlawed. And they got their wish when the Liberal party came to power in 1832. One of their first acts was to fulfill the agenda of the Bank of England. All of the tally sticks were gathered together and burned in a stove in the House of Lords. However, the fire got out of hand and burned down the Houses of Parliament. When we view Turner’s magnificent paintings of this event, we should keep in mind what it was all about.

Medieval merchants and local markets would also produce tokens or vouchers for their goods. Thus, for example, a baker would issue his own “money” which could be redeemed for his bread, while the butcher or the cobbler would do the same for their meat and shoes. These tokens would circulate as money on market day, and at the end of the day the merchants would settle accounts between them. Note that the baker would not issue more tokens than the bread he could bake nor the cobbler for the shoes he could make; the supply of this market money was always more or less equal to the goods the money could buy.

The banks triumphed in the end, even if it meant that they had to burn down the symbols of democratic order to do so. But a bank is not like a baker; a baker can issue credits only for the bread he can bake; a banker can issue credits in infinite amounts. We have in our mind a picture of the banks as lending out the deposits they receive, as serving as mere financial intermediaries. But this is not the case. A banker will never lend out the money you deposit; this he holds as reserves against losses, and for day-to-day cash transactions. No, the “money” he lends out is simply credits he creates by pressing a few buttons on the computer or by making a few entries in a ledger. The borrower may write checks against these credits, and at the end of the day the bankers settle up the checks between each other; no cash is involved. Now, this would not be a problem if the money was always lent for productive purposes. But insofar as the money is lent for speculation, then the money supply expands faster than the goods and services it is supposed to represent.

New money is injected into the economy, but unlike the baker’s money, that money matches no new goods. The claims on the existing stocks of goods and services are multiplied, but those stocks are not. The power of a small group of citizens is multiplied by the monopoly granted by the government. Compare the situation of the farmer and the banker: the farmer may increase his wealth only by work, the hard work of growing corn; the banker may increase his wealth, or at least his assets, by pressing a few buttons on the computer.

Herein lies the great secret of our money system: before you signed the mortgage to buy your home, or the note to buy your car, or the credit slip to buy a hamburger at McDonald’s, the money to buy the home, the car, or the burger did not exist; it comes into existence in the very act of borrowing it. Henry Ford once said, “If people understood how money was created, there would be a revolution before breakfast.” But Mr. Ford was wrong; there will be no revolution because people will simply not believe that money can be created so easily. But alas, that is indeed the way the system works.

Here we may return to our original parable, the sad tale of how indissoluble obligations were turned into temporary debts; of how the ties that bind are easily dissolved by putting a number on them. We cannot help but be a society of strangers, yet underneath this, we cannot be a society at all unless we recognize our mutual obligations to one another. It is possible that our rude ancestors had it right all along: that obligations are more important than debts, and that amnesties are the key to economic and social order. Surely this question faces us now with a force that cannot be ignored. We are truly in each other’s debt, but it is a debt that extends beyond the mere payment of the sum of money. Money is a useful, even a marvelous tool, but like a fire it can either warm or destroy us. In his latest encyclical, Pope Benedict XVI saw in the root of all financial dealings, a “principle of gratuitousness,” a principle that binds society together in a way that exceeds mere money debts. Money itself is merely the credit we extend to each other, and that “credit” has as its root credo, “I believe.” For along with faith in God we need faith in each other; credo in unum Deo cannot be replaced with credo in unum dollar.

 

About the author: John Médaille

 

John Médaille is an adjunct instructor of Theology at the University of Dallas, and a businessman in Irving, Texas. He has authored the book The Vocation of Business, edited Economic Liberty: A Profound Romanian Renaissance and just completed Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More.

 

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18 Comments

  1. I knew something was wrong with this; now I know what it is:

    It is a slow day in a little Greek village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs:
    • The hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
    • The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
    • The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
    • The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna.
    • The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
    • The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
    The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
    The whole village is now out of debt and looking to the future with a lot more optimism. No one produced anything. No one earned anything. And that, Ladies and Gentlemen, is how the bailout package works.

    From http://www.zerohedge.com/news/friday-humor-unspinning-%E2%82%AC100-bill-or-how-european-bailout-really-works

  2. That works because everybody is paying off a debt, not buying something; no new money is required because no new production is in play. It’s basically a debt amnesty, which is indeed the solution to the problem. Everybody acknowledges that they have already received something from everybody else, and just says, “Okay, we’re all even now.” IOW, it could have been done without money, just as the ancient Mesopotamians did it.

  3. That was cool Ron!

  4. Thanks, Steve — glad you liked it. And, thank you John, because I was worried that the little story wasn’t really applicable. However since you found the “catch” for me, I understand your article better.

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  6. The Francis Thompson story reminds me of two things. Not only are obligations and debts fundamentally different, but that while motherhood is biological in nature, fatherhood is social in nature. After all there is no way to be 100% sure who one’s biological father is, but biological motherhood absent IVF is a readily observable phenomenon.

    And so an added layer here is that Thompson’s father in essence severed that relationship by converting it into debt, and that this was possible not only because of the nature of debt, but the nature of fatherhood as well.

  7. John,

    > ”The borrower may write checks against these credits, and at the end of the day the
    > bankers settle up the checks between each other; no cash is involved. Now, this would
    > not be a problem if the money was always lent for productive purposes.”

    Indeed–for instance, according to Schumpeter’s theory of development, credit, speaking strictly in the context of development, is only created in order to provide purchasing power to an entrepreneur to use to acquire specifically production goods (aka, means of production). Since this new purchasing power comes from outside the *theoretical* circular flow of the regular economic process (i.e., one sans development), E is taking these production goods and employing/deploying them elsewhere. In the process he causes their prices to rise. The credit is extinguished later when the goods produced by E generate enough (in the good case) to pay off the debt and interest, etc. Only in this case, Schumpeter says, inflation is controlled and rules can be derived to determine the magnitude of the possible creation of purchasing power by the bank.
    However, Schumpeter was prescient. In Ch. 3 – Capital and Credit, of his *Theory of Economic Development*[1], he indicates (originally in 1911!), while looking to find by what is credit creation (*for development* (!) in his case) limited, that:

    Only in one other case could the banking world, if it were released from its obligation of redeeming its means of payment in gold and if the regard for international exchange were suspended, start inflation and arbitrarily determine the price level, not only without loss *but even with profit* (my emph.): namely, if it pumped credit means of payment into the circular flow either by making bad commitments good by a further creation of new circulating media or by giving credits which really serve *consumptive ends.* (my emph.)

    Of course, no bank by itself has the wherewithal to do this, provided there is a lot of them and they are not…“cartelized”,

    But all banks together could do it. They could…continually give additional credit and precisely through its effect upon prices make good that [credit which was] given previously.

    So, he continues, there should be legal control of this activity and control limits in place. I would add, that even though those may exist, they also have to be enforced–and even judges now realize that latter requirement may not even be close to being fulfilled, at least wrt some of the SEC prosecutions (an article at http://www.nytimes.com/2011/12/30/business/judge-says-sec-misled-two-courts-in-citi-case.html is only one episode of an on-going sagas).

    In any case, Schumpeter concludes

    Just as the state, under certain circumstances, can print notes without any assignable limit, so the banks could do likewise if the state–for it comes to this–were to transfer the right to them in their interest and for their purposes, and commons sense did not prevent them from exercising it.

    Again, this was written in 1911 (with minor modifications in 1934)–a Wunderkind all right…

    Alin

    [1] Joseph Schumpeter, *The Theory of Economic Development”, Transaction Publishers, New Brunswick, NJ: 1983, pp. 114-115.

  8. Alin, thats why in classic banking theory there are 2 kinds of banks. One can’t create money, its purely deposit in function and can only make loans if people capitalize it with savings or deposit savings. The other kind can create money but only if someone brings something to the bank that has value, like a note or a bill for something they own. It gives the borrower a note, a “bank note” for the borrower’s note. If its to finance capital that produces something, that’s fine. If its for consumption, its inflation. If a government issues bonds, it can take those to the bank the same as a private citizen, but its not backed by anything other than the government’s power to collect taxes, that is, the faith and credit of the government. Governments dont make anything. A government that issues bonds backed by future taxes is doing something different from a government that just borrows existing money. If a government gives the central bank or other banks the abpility to issue bonds or notes backed by the government’s ability to tax and sell them to other banks we get inflation and a worthless money. What I think Shumperter was saying is that you’ll get inflation if the money is not created to finance new capital.

  9. Art,

    Schumpeter starts with a “circular flow” economy, i.e., an economic setting with all things [neo]classical: marginal productivity of labor equals wages, etc., it is in equilibrium (Walrasian, if you will), and so on. In this setting “there is no profit” in the sense of entrepreneurial profit and it can grind along for ever.

    He then starts tugging at the various assumptions of that model in light of a central guiding idea which Kant, for instance, expressed as “how is it possible to have something new?” (see *Prolegomena to the Critique of Pure Reason*, for instance)–specifically, “how is *development* possible?” rather than “growth.” Note that in a circular flow economy *growth* is indeed possible, whereas *development* in his sense is not.

    The core of Schumpeter’s view is that “the new” is driven by the entrepreneur through finding “new combinations” of existing production goods (goods used to produce other goods rather than the goods used for consumption) to create new products–that’s strategically speaking. Tactically, this is all made possible through the “creation of purchasing power” that the entrepreneur “borrows” (through debt or equity, it does not matter for Schumpeter’s argument just like it did not matter for Modigliani and Miller’s Theorem, aka MM 1, and the heart of their modern capital structure can definitely be found in Schumpeter’s 1911 writings). Now the creators of purchasing power *par excellence* are the banks, of course. (I couldn’t tell you right now what Schumpeter thought about the view of the development of capitalism unto an eventual financial capitalism, a la Sombart).

    In the circular flow posited by Schumpeter, there is no (or very little, through savings) available purchasing power that an entrepreneur can borrow to fund his new combination of production goods (remember, all is in equilibrium). So, for any development to take place, the banks “must”, of necessity, create purchasing power, this function becoming therefore fundamental, sine qua non rather than a nice-to-have, to any development–because there is no other source for *new* purchasing power. If the entrepreneurial venture is successful, then the value created through the new products will absorb the credit thus created (the entrepreneur pays back his loan and interest thus “mopping up the liquidity” previously created for him) and there is, in the end, no inflation. I believe that’s what John was implying in the quote I took from the article above. If the venture fails, then that’s another story, of course. And the ability to manipulate that process is what the quotes I listed from Schumpeter warned about.

    Schumpeter also states that, in essence, “the entrepreneur bears no risk” in this process. I will let you mull over that because it does make sense in his framework…

    Alin

  10. Have you ever read Lonergan’s work on the circular flow of money?

  11. John Medaille, is this Bernard Lonergan to whom you refer? And who is your addressee?
    Viking

  12. Rome and Greece were money societies where usury reigned, and the poor became, increasingly, the slaves of the rich.

    More precisely, in the more usual case, the poor became the clients of the rich who supported their patrons within the polity – a role they could not fill as and when they sank out of citizenship into slavery.

    credo in unum Deo cannot be replaced with credo in unum dollar.

    Shouldn’t those “in unum”s be “uno”s, unless it’s from some later Latin than the classical? “Credo” takes the dative (and “in” takes the ablative when it means “in” or “on”, and the accusative when it means “into” or “onto”, so it shouldn’t be there at all).

    Alin wrote:-

    If the entrepreneurial venture is successful, then the value created through the new products will absorb the credit thus created (the entrepreneur pays back his loan and interest thus “mopping up the liquidity” previously created for him) and there is, in the end, no inflation.

    If that were isolated and had no sequel, yes – but for actual development to occur, that new activity would have to be made part of the norm, and everything would be rolled over; there would be no “end”, and the temporary, one off inflation wouldn’t be backed out (though there would be no sustained inflation, i.e. no more created in each period after the initial period – but then again, a stream of new developments would create a stream of one off inflations, and so sustained inflation).

    Also, have a look at the role of “obs” (abbreviated from “obligations”) in co-ordinating economic activity in an anarchist society in Eric Frank Russell’s SF novel “The Great Explosion”.

  13. Vi, Yes, that would be Bernard Lonergan. His work on economics was not published until after his death, but it is brilliant.

    Mr. Lawrence. I believe you are correct. An expanding economy will be mildly inflationary if the expansion is financed by new credit. And if the expansion is not financed by new credit, there likely won’t be much expansion at all.

  14. At church, we offer free donuts during the fellowship time between services. There was a man who used to come in and help himself to pocketsful of donuts. Well, they were free, how could that be stealing?

    It was, though: the donuts are free of monetary cost, but they are offered in a social setting. Anyone is free to join that chain of obligation.

    So, you don’t take pocketsful of donuts. And when you can, you put a few bucks in the “donut basket.” You help setup/cleanup the coffee hour occasionally. And, especially, you may take the last cream stick, if you get out of bed in time. However, you may not take two cream sticks until everyone has had a shot at one cream stick. Stuff like that.

    Well, that’s an accessible little example. It can be more serious, though. I have two friends who are dealing with clinical depression because they’ve spent huge swaths of their time and effort on organizations that were founded based on social chains of obligation, but which have become monetized. So, generations of local people owe their ability to swim, and work as a lifeguard, etc. to the Red Cross swimming programs that my friends set up, and taught, and administered. Now the Red Cross has monetized the program, slashed the support staff, and is charging a fee that most of my friends’ clients just can’t afford.

    They’ve spent years as Scout leaders: now the local Scout camps are being treated in a strictly monetized way, and are being sold off without any input at all from the hundreds of volunteers who used those camps to educate boys and girls (who now, in their turn, are many of the leaders in our communities.)

    It’s sad for me to see it, and I believe it’s killing my friend.

  15. Schumpeter’s “error” (more of a miscalculation) is to assume that there is no role for the present value of future goods, that the notes accepted by banks represent only existing goods (mortgages) not bills on future goods. Banks however can’t create money by themselves, only by accepting something in exchange for which they issue notes. Issuing something doesn’t make it money, only accepting it. Knapp got that right, even if it’s about the only thing he did get right, as Schumpeter explained. Schumpeter weaknes his own case against Malthus by not admitting the special role of the issue bank in its entirely. He does get it right, but then backs off from it in his theor Of Economic Analysius. He goes a long way, but he can’t get out completely of the box of Ricardo and Marx; his analysis of Say is off to that extent, although he doesn’t make Keynes’ mistake and Marx’s of rejection Says Law.

  16. Art, “Banks however can’t create money by themselves, only by accepting something in exchange for which they issue notes.” Yes, but the “something in exchange” they accept is a simple promise to pay. I am not really familiar with those parts of Schumpeter you are critiquing, but it does sound interesting. Perhaps you could expand on that for those of us less familiar with the topic.

  17. No, what the banks are accepting is a lien on the present value of existing or future marketable goods and services, just as good (or as bad) as ny other contract, all money is a contract, just as all contracts are money. All money is a promise to pay, and money and credit are two forms of the same thing. A deposit bank can only lend out promises that other people have put in and in the form they put it in, where a issue bank can trade its promise for another form of promise. Schumpeter dodges this in his History of economic Analysis when he discusses say’s Law, which is that “money” is simply the promise we make to others to deliver the present value of something we’ve produced or will produce for what others produce. Its when the state starts changing the money or creating money that we get into trouble because the government doesn’t own what its promising to deliver and can’t produce it because the state doesn’t produce anything, it can only tax what other people produce.

  18. Its when the state starts changing the money or creating money that we get into trouble because the government doesn’t own what its promising to deliver and can’t produce it because the state doesn’t produce anything, it can only tax what other people produce.

    I don’t agree. When the government establishes water, transportation, police, fire depts., education, etc., are those not services we benefit from? Does your money not represent some of these things which the government spends into existence that you benefit from? Is this not production in the way of services?

    Secondly, banks create money also without producing a damn thing. They create money into existence based on the promise of the borrower to repay. That is bank credit which comprises 95% of all money in circulation. It is nothing more than a piece of paper that says “I Owe the Bank”, and on that basis the bank creates that same amount of credit. That is how our debt based money system works. Unless 100% of that is re-invested into the economy, the system will collapse because there will not be enough money to earn in order to pay the interest (which is not created in loans, rather only the principal is created). Frankly, government can’t possibly do worse than the current range of crooks from the FED, to Goldman and Sachs to Bank of America. The system in and of itself is a house of cards, because the money does not back our production, it backs what we owe.