What is money?

There’s a lot of complexity surrounding money, but the simple principle is it’s a human invention designed to make it easier for people to exchange goods and services. Money is used to represent value. A piece of paper, or account entry all by itself doesn’t have much value. It becomes valuable because people have agreed that it will represent value so it can be exchanged for something that is valuable. When you provide a valuable product or service and accept a piece of paper in exchange from an employer, client, or customer, that exchange is based on agreement and trust. You both agree that that piece of paper represents value, and you trust that it will be accepted by someone else in exchange for something you consider valuable.

In current times, money is mostly in the form of paper notes, metal coins, or recorded additions and subtractions from accounts. It should be noted that people are very capable of exchanging or sharing goods and services without involving money, but in the current age, money is commonly used for the purpose of making exchanges.

Another thing about money is that if you have an expanding or contracting population or economy, the supply of money probably needs to be able to flex with the economy. If the United States as it exists today were trying to operate its economy using the money supply used by the thirteen colonies, that might be something of a problem.

As the graphs on the home page show, there’s a lot of debt in the current economy, and in defiance of all sense and logic, debt is far greater than money. If money were doing its job of facilitating exchange, and if it were flexing with the needs of the producing economy, why would people need to go into so much debt? And how did we manage to get more debt than money?

There is a very mechanical reason for the ever-growing debt in the U.S. and the world. It has to do with how money is and isn’t supplied to the economy.

Where does money come from?

Last modified: January 24, 2015