Money Creation
Despite what you might hear from many economists, fiat currencies are one of humanity’s greatest inventions. It ranks at least as high as double entry bookkeeping. The reason most economists don’t realize this is that economics has not progressed beyond gold standard thinking.
Modern Money Theory (MMT) is a description of how post-gold-standard money works. The theory has some flaws, but it acknowledges that all money is created as debt. One of the errors it makes is that it assumes that all money MUST be created as debt.
Despite most economists’ beliefs, when you take out a loan, the bank does not loan out depositor’s money. (See this.) Instead, it creates new money out of thin air in exchange for your promise to pay it back. That money circulates through the economy which hides its origins in debt. Those economists who claim that banks only loan out depositor’s are wrong.
This creation of money as debt has turned humanity into debt slaves. No amount of frugality or discipline will allow all people to live without debt. Those who have achieved a debt-free status have done so because others have gone deeper into debt. The macro-society can never be debt-free under the current system of money creation.
Money is no longer backed by gold. This has been true since 1971 or 1973 depending on if you consider the temporary suspension in 1971 as the starting point. The “fiat” money (not backed by a commodity) offers many more opportunities to conduct responsible fiscal and monetary policy than before, But as long as all money is created as debt, there is no way to create a stable economic system.
Even under all different gold standards over the millennia, money didn’t have the flexibility to allow living debt-free. Fiat currencies have the power to achieve that goal.
Toward a New Economic Future
This website attempts to construct a better system of creating money and controlling an economy. At least some money must be created debt-free to allow for economic stability. I’d like to see MMT transform from simply a description of how money works to the development of a post-gold-standard school of economics.
The blog identifies problems; thoughts on research; identifies interesting articles, books, and papers; and more.
The intellectual challenge of understanding money need not be as dull as it is made when you took your economics courses.