EC The Scarcity Of Money Myth

Money, Money Tower, Coins, Euro, € Coin, Specie

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I’m here to ruin some long-running narratives. I apologize in advance.

Money is not scarce. It never has been and it never will be. More importantly, scarcity of money is not a strength.¹ It is a weakness. Sound weird? Yeah, I bet. Let me explain.

Back in college, I was kind of obsessed with commodities and commodity money. I’d been reading a lot of Austrian econ and all that stuff. But then I came across the endogenous money theories and I learned over time that money is not a physical thing or a rock in the ground or anything “natural” at all. Money is actually a very unnatural thing. We’re the only species that uses it because it is pretty much something we conjure up in our minds. More specifically, “money” is really just a bunch of contractual agreements. It’s “I’ll give you 25 apples at this time next year and this monetary note will settle that debt”. Loans create depositsDeposits are money. Anyone who’s read this website for 10 minutes probably knows that. But all those loans, all that money, is just an agreement between two parties. It’s just a contractual agreement created from thin air. The government didn’t need to be involved (though that could certainly help in lots of ways). We didn’t need gold bars or physical coins or anything “natural” here. We just needed two people to make an agreement denominated in some specific terms. In its simplest sense, that’s really all money is – an agreement between two people that other people ultimately exchange in the meantime for all sorts of other stuff of relative value.

The key point here is that that money has value because someone has strong demand for it, presumably because there’s the promise of valuable goods and services attached to it. I want those 25 apples in the future and so do lots of other people so the demand for that money is strong because it’s a claim on real resources (assuming of course the 25 apples actually come into existence). And this is basically all the modern economy is. It’s a bunch of people making promises to make things (mostly homes, to be honest) in exchange for some amount of deposits that they conjured up from nothing in the form of a contract.

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If you have questions run on over to the forum. I am happy to help.

Disclaimer: The content in this article is provided as general information only and should not be taken as investment ...

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William K. 2 weeks ago Member's comment

The problem with inflation is that it creates more of the medium of exchange without creating anything of value to go along with it. So now those 25 apples are purchased with a hundred agreements for a quarter of an apple,but each of those quarter apple agreement tokens took as much work to earn as the previous whole apple agreement. THAT is the harm done by inflation.

So it is the lack of creating value to match the creation of the money that is the flaw.And THAT is what gives inflation such a bad name. But it seems that very few folks will even admit that bit of reality.