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Where does money come from

One the one hand we have skills and resources, and on the other there are needs, wants, and desires. Somehow needs cannot be satisfied with available skills and resources without some magical medium called money.

The most common sources of money are mining, debt, and credit.


The essence of mining is the control of introduction of new money (inflation). The medium is not that important, as is could be shells, stones, paper, metals, even virtual tokens. What is important is that the supply cannot be inflated uncontrollably.

Obviously gold mining (inflation of about 3% per annum, and declining) comes to mind, as does bitcoin mining (about 2%, and also declining, but to an asymptotic maximum). Otherwise there have been searching for certain shells, or carving limestone (like rai stones of Yap island), mining salt.

Despite the emphasis that the Austrian school places on mining for managing inflation, it is a blunt instrument that throttles economic growth to the rate of mining production, and encourages hoarding due to its deflationary nature. Expiry (eg. Wörgl) and zakat (Islamic wealth tax) discourage hoarding to maintain the velocity of money.

Even in times of gold standards, fractional reserve banking, financialisation, and derivatives have made up for the insufficient money supply.

Debt (bank money)

Almost all money in use today is debt, issued with a claim on assets (collateral), at compounding interest by private corporations called banks.

So where does (bank) money come from? All bank money is a loan at source. Let’s walk through the loan process at a hypothetical new bank.

The bank starts with nothing, no asset account, and no gold in the safe. A client walks in and requests money for working capital for his/her business (for eg.). The bank complies, and the client leaves with a balance in his/her account, a lien on his/her assets for the amount, and an obligation to pay periodic financing charges (interest payments).

What?? The bank started with nothing, but ended up with a claim on an asset, and a nice income stream. All for a simple bookkeeping journal which even gives the bank a financial asset that can be rehypothecated. How do they get away with this?

Now we know how a small group is exponentially more wealthy than the rest of us. That small group, with access to infinite funding dominates finance and industry. As we see with tech and zombie companies, making profit and having positive cash flow is less important than access to funding.

All (almost) money on the planet is this type of debt to banks which has to be serviced at compounding interest, or face forclosure and dispossession. Governments, corporations, and people are in a constant scramble to find money to pay interest, exploiting labour, and externalising costs onto the environment.

It gets worse. The money for interest payments was not created with the loan, so as interest is paid, money for working capital (in our example) declines, so the client has to keep borrowing more and more just to have enough to carry on business and pay loans. Obviously bankruptcy will result unless they can wrest the money from customers, suppliers, and the environment, to keep on going.

To accelerate bankruptcies, banks cause periodic recessions. Recessions are caused by credit contraction; not weather, sunspots, nor crop failure, but by banks alone.

Modern Monetary Theory (MMT) is in fact not modern, but a rebranding of centuries old chartelism. This is bank money creation gone mad through by means of governments under the illusion that they can borrow infinitely from (private corporations called) banks, as long as it is in the local currency. The theory argues that governments can manage excess liquidity (inflation) by taxes and then destroy the money received, believing that governments do not need tax revenue.

The flaw in MMT is that sooner or later the government cannot pay the financing changes (already the largest single expense in all governments) leading to banks asset stripping nations of pensions, lands, and infrastucture. Conquest by compound interest.


Other than bank money, we have government and private monies. The salient issue with these monies is acceptance/adoption.

Government money

Almost all money governments use is bank money, borrowed at interest, using state pensions and national assets as collateral. This is why banks continue to lend to bankrupt governments knowing that they get to plunder nations by “restructuring”.

A very small percentage of money is government money, ie. notes and coins, and in future, Treasury Digital Currencies (TDC) – not to be confused with Central Bank Digital Currencies (CBDC).

Government money (notes, coins, TDC) are adopted because they can be used to pay taxes, and as legal tender (if the payer refused to accept legal tender, they are supposed to forfeit the payment obligation).

Even though government money is typically issued without interest, increasing the supply is of course an invisible tax on the buying power of savings and wages through inflation. And having governments decide what to spend on and who to deny, invites corruption and distorts free market efficiency.

TDC is terrifying, since it gives government complete insight and control of personal expenditure.

Private money

Just as we cannot be free unless we the people, are the forces, we also cannot be free without private money.

Most private monies are local trading communities using a local currency to attempt to keep more spending local. However these currencies are typically bought with bank money.

Duniter Ğ1 is an excellent example of a private currency created without bank- or government money. Money is created periodically, and introduced into use by being distributed to each member; those with more receiving less and vice-versa.

Mutual Credit is money created on the strength of credit extended by other members who vouch for the recipient. Mutual Credit is private, but transactions are visible to trading partners.

Mutual Credit is a completely free money without interest. It comes into existence as economic activity takes place. There is this no constraint on economic activity and thus there cannot be unemployment since economic activity expands to the extent of available skills.

How it works is that an IOU (a payment) is issued to complete a barter transaction (a purchase). The problem with barter (purchasing) is the coincidence of wants, so we simply issue an IOU for the purchase, with the understanding that anyone (bearer) can redeem it for our products or services in future.

A person’s spending limit is the total of payments- and credits received. Interest-free credits are:

  1. the amounts that others will permit you to spend with them (like running a tab, but paying for the goods/services with the credit received),
  2. or an amount that someone will vouch for your spending elsewhere.

Please see the Q&A page for more answers.


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