Chapter 5 - The Inadequate Definition of Money

Most definitions of money have these elements:

  1. Money is a medium of financial exchange.
  2. Money is a measure of value.
  3. Money may be used as a store of value.

Although sometimes it is written as:

  1. Money is a medium of exchange.
  2. Money acts as a unit of accounting.
  3. Money can be used as a store of value.
  4. Money can be a standard of deferred payment.

Other items or comments written into or around the definition include:

Money is a human invention to facilitate the exchange of goods and services.

The use of money tokens overcomes the inefficiency of barter.

Money has value because it has a limited supply and a has a demand created by a government for the payment of taxation.

Money has no value to the creator, but maintains value to the citizens by scarcity and by enforcement.

Money is socially accepted as a means of exchange.

Money is authorized by government.

Money is used as a measure of the values of goods or services.

Currency and coin are money that is guaranteed as Legal Tender by the government, a regulatory agency or bank.

Cash is the Legal Tender of the nation. Other forms of money, including Bank Credit, are not Legal Tender but are generally accepted for the extinguishment of debts including taxation debts.

There is no uniform agreement as to what qualifies as money; some economists include more mediums of exchange than other economists.

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts.

Money can be used as a unit of account.

Money can sometimes be a standard of deferred payment.

Money obtains its value because the government declares it to be Legal Tender which means that it must be accepted as a means of payment for all debts, both public and private.

Because there is so much to gain from the authority to create money, any level of trickery, deceit and violence may occur.

The definition of money has a similar problem to the definition of gravity. The definition is inadequate. The definition may restrict your comprehension of the money system.

One major statement is missing from the standard definition of money: money has 'no value to the creator'. The definition suggests that money always has value and this is not correct. Money is created at no cost and obtains its value when the creator spends the money into society. The creator can create any amount of money at no cost and so it is effectively a 'free' resource to the creator.

The value of money to an individual equals the value that can be realised at the next transaction. As individuals, we perceive the value of a one hundred dollar note to be one hundred dollars because we can buy food to the value of one hundred dollars ta the next transaction. The value of this one hundred dollar note to society is significantly higher. A one hundred dollar note will travel from individual to individual in a continuous cycle of transactions releasing many thousands of dollars of life-sustaining and wealth creating transactions. Money itself does not have value, the transactions it creates have value. Money starts with no value and finishes with no value. To the simple human brain, the value is perceived as the value at the next transaction.

Money was invented by humans. It is a social construct. It has value because there is demand for it. Without demand, it has no value. The demand for money needs to be created. The traditional view is that the government creates the demand by requiring that taxes be paid with the money tokens. In this traditional view, without taxation, there would be no demand for the money tokens. The volume of tokens would become excessive and the purchasing power of the tokens would fall significantly. But this thinking is flawed. Under a debt-banking system, the demand for interest by banks creates much of the demand for money. The government only creates cash currency which it does not use itself. It borrows Bank Credit from banks and other creditors in a system involving the issue of bonds. It is the banks that create the credit when they make loans. The banks demand interest and principal repayments which cancel the debt. The demand for repayment creates much of the demand for money.

The government has been relegated to a user of bank-credit and only recycles bank-credit that it collects in tax. It effectively cannot increase the demand for money as it simply spends bank-credit that it collected as taxation. Taxes are collected as bank-credit, stored in a bank account as bank-credit and spent by the government as bank-credit. Other avenues for the government to obtain bank-credit include the sale of public assets and borrowing. Borrowing is usually done by borrowing from any creditor by the issue of certificates, (called bonds), promising repayment at a fixed future date with interest payments at regular intervals. The government does not conduct business using cash currency. Demand may be created by taxation, but the volume of money is not altered by taxation. The volume of money is regulated by the rate at which banks lend money compared to the rate at which they take repayments. Because interest is added to the debt, the steady state tends towards a slight reduction in the money supply. Thus, the need to have an ever increasing list of items requiring debt to maintain the money supply.

In Islamic economics, it is accepted that money itself has no intrinsic value. To Islamic economists money is simply a medium of exchange. This is much closer to reality.

Store of Value

Money obtains its value from the value that it will obtain at the next transaction. If, for any number of reasons, it ceases to be a viable means of exchange then it will have a value of zero. The value of money is, therefore, dependent on its ability to transact. Money can be used as a store of value, but it is only has stored value so long as it is a viable means of conducting transactions. Hoarded Money thus only has stored value whilst the money is transactable. As soon as the value of a transaction falls, so does the stored value. This creates a problem for the hoarder, but also for those who only have money passing through their hands in trade. Hoarded Money returning to regular circulation will cause an increase in the volume of Circulating Money which will cause a minor fall in purchasing power. Large quantities of Hoarded Money converted to Circulating Money will cause a dramatic fall in its purchasing power. Thus, Hoarded Money should not be considered a Store of Value. Hoarded Money only has value if an equal volume of Circulating Money is converted to Hoarded Money at the same time. A rapid conversion of Hoarded Money to Circulating Money is potentially the onset of hyperinflation.

The Nineteenth Flaw of Economics

   Money is not a store of value.

The Twentieth Flaw of Economics

    Hoarded Money is a money avalanche waiting to create hyperinflation.

An Example of Hoarded Money Having No Value

Consider a situation where 80% of the money supply is Hoarded Money and 20% is Circulating Money. If 20% of the money supply moves from the Hoarded Money component to the Circulating Money section, the volume of Circulating Money is doubled to 40% of the money supply. This has the potential to halve the purchasing power and double the prices. This is commonly reported as an inflation of 100%. This is ugly enough, but the problem may create a bigger problem. This inflation of 100% may cause the remaining 60% to come out of hoarding and reduce the purchasing power to one fifth of its original value. This would be reported as inflation of 400%. We have moved to levels of inflation occurring in during hyperinflation. We have created hyperinflation simply by spending hoarded money. Excessive hoarding is thus a trigger for hyperinflation. Hoarded Money is like the snow on a hill, above a ski lodge, waiting to avalanche. When 80% of money is hoarded, it is false to believe that its purchasing power is the same as Circulating Money as any release, above a small percentage, dilutes the pool of Circulating Money.

The Nineteenth Flaw of Economics

   Money is not a store of value.

The Twentieth Flaw of Economics

    Hoarded Money is a money avalanche waiting to create hyperinflation.

   Hoarding must be stopped to prevent avalanche hyperinflation.

If hoarding was banned, money would still function as money. Money can be used as a measure of value, but it does not need to be used as a measure of value. Under inflation, or even hyperinflation, money is functioning as money because it is still used as a means of enabling transactions. Under these conditions, it is hopeless as a 'measure of value' and hopeless as a 'store of value'.

Hoarded Money is not a store of value because its purchasing power is eroded as it comes out of hibernation in proportionate manner. If a small percentage comes out of hoarding, little will be noticed. Hoarded Money retains value if it is converted to Circulating Money at the same rate as Circulating Money is hoarded.

   Hoarded Money is not a store of value because its purchasing power disappears if it is brought out at a significantly greater rate than new hoarding occurs.

The Third Flaw of Economics

   Money has no value to the creator. The creator of money can create money tokens in any volume at effectively no cost. Money has no intrinsic value.

Definition of Inflation

Along with the definitions of usury and money, the 'Definition of Inflation' has been modified over the years. Webster's American Dictionary of the English Language in 1864 defined inflation as:

undue expansion or increase, from over-issue; -- said of currency.

In the Merriam-Webster second edition of its New International Dictionary in 1934 inflation is defined as:

Disproportionate and relatively sharp and sudden increase in the quantity of money or credit, or both, relative to the amount of exchange business. Such increase may come as a result of unexpected additions to the supply of precious metals, as in the period following the Spanish conquests in Central and South America or the period following the opening up of large new gold deposits; or it may come in times of business activity by expansion of credit through the banks; or it may come in times of financial difficulty by governmental issues of paper money without adequate metallic reserve and without provisions for conversion into standard metallic money on demand. In accordance with the law of the quantity theory of money, inflation always produces a rise in the price level.

Samuel Johnson's A Dictionary of the English Language, 1755, had this definition for inflation:

The state of being swelled with wind; flatulence.

Merriam-Webster's Collegiate Dictionary, eleventh edition, 2003, inflation was redefined as:

a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and service.

However, this leads to flawed thinking. It is the rise in the portion of the money supply that is not hoarded that makes the difference. This is indicated by the velocity. Price level inflation also occurs if there is an increase in velocity. If the money supply increases whilst velocity falls in proportion, then no price rises are likely to occur.


This can be calculated by assuming that Circulating Money changes hands before one month. Velocity is the number of times money changes hands in one year, so a Velocity of 1 indicates that one-twelfth of the money changes hands each month. A Velocity of 2 indicates that one-sixth of the money changes hands each month. Some people tell me that their money only lasts one week, in which case they have a Velocity of 52. Some businesses have a big restock each week giving a velocity of 52. I have had problems deciding what time period to use but by deciding on the arbitrary 'one month', I can make some calculations and add some realism.

 Velocity    'Circulating Money' percentage 
 12  =  100% 
 2  =  17% 
 10  =  83% 
 2  =  17% 
 5  =  42% 
 3  =  25% 
 2  =  17% 
 1.5  =  12% 
 1  =  8% 
 0.75  =  6% 
 0.5  =  4% 

Talking Heads

Talking heads usually advise increasing the money supply to boost the economy, but increasing the velocity by decreasing hoarding will have a similar effect. Of interest, under current Bank Credit regime, an increase in money supply requires an increase in debt, which is good for the bank bottom line.

Gold and Silver as Money

Where gold or silver have been used as money, it is their rarity and their desirable physical features that give them their initial value, but it is the requirement to pay taxes that creates the demand. If gold nuggets were found in every garden, gold could not be used as money. If society had a distaste for gold, it could not be used as money. If gold had a religious spell cast on it, it would become worthless in that area. It would be used as fishing weights. Part of the reason for the high value of gold is because it has been used as money and has the potential to be used as the medium for money. Part of the drop in the value of silver would be because it is less likely to be used as money. It is my view that if a metal commodity is required as a medium for money, then silver would be preferable, as it would be more difficult for the proponents of gold to monopolise the metal. Do not be deceived into thinking that silver and gold are precious because of some intrinsic characteristic. They have value because they retain the possibility of being used as money and they retain the reputation of being usable as money. That reputation comes from history and their relative lack of abundance. They only function as money when stamped, so they still need a government 'Fiat' upon them. So you might as well think of silver and gold as just a medium on which a convenient government stamp is embossed. This view would make them 'Fiat Money'. Many years ago in California at the height of the gold rush, so much human effort was put into gold mining that the Californians forgot to plant food. They nearly starved. The increased supply of gold, depressed the value of the currency in a manner called inflation. Similar happened in Spain. Plundered gold was brought home to Spain in a manner that caused great inflation and the demise of the Spanish Empire. Silver and gold can suffer the same abuse as paper Fiat Money.

A beautiful example of demand maintaining a value of a commodity is the clever system employed in the diamond industry. Diamonds are comparatively plentiful, but, by restricting the supply of fresh diamonds to the market, the value of diamonds is maintained. Supply of diamonds is carefully matched to current demand which cleverly maintains their value at a much higher level than would naturally occur.

The reason I talk about 'money having no value to the creator', is that its absence from the definition encourages the bizarre way we generate and manipulate money in modern times. I started my study of money when writing pamphlets for the Occupy Wall Street movement. I had assumed that all money in Australia had been created by the Reserve Bank of Australia. You may have assumed this as well. Only a small amount of logic was needed to realize that I was utterly wrong. A quick look at the definition of Money Supply should make it fairly obvious to most. The Money Supply, in its simplest form, includes Legal Tender (the orange part) and demand deposits in financial institutions (the green part). The Legal Tender is the money created by the Reserve Bank of Australia in the form of cash, and is the orange part of these graphs. The rest of the Money Supply is the Bank Credit in bank accounts which is mistakenly described as 'Money in the Bank' (the green part). It follows that only a very small portion of the Money Supply is in the form of cash created by the Reserve Bank of Australia. The biggest portion of the Money Supply is in the form of Bank Credit in bank accounts. The green part clearly never came from the Reserve Bank as the total ever produced by the Reserve Bank of Australia is $67 billion. [RBA 2015]

Money Supply

The Bank Credit is close to 95% of the Money Supply of the nation. This 95% is not cash, as this volume of cash was never created by the Reserve Bank of Australia. It cannot be turned into cash, as this volume of cash never existed. I shall call the money listed in bank accounts 'Bank Credit' to represent its nature. This Bank Credit is credit for an equivalent amount of currency (Legal Tender) to be paid to the client at some time in the future. It is the amount of currency that the bank promises to pay you, on request, in Legal Tender. Thus, it is a bookkeeping credit in a computer for that amount of currency. There is a regular transition of Bank Credit into cash and cash into Bank Credit. This convinces the citizens that their bank balances are convertible to government issued cash. There is not, and has never been, the volume of cash available, nor created, to match the total Bank Credit in bank accounts. Thus, the Bank Credit, as listed in bank accounts, did not come from the Reserve Bank of Australia. It, perhaps, not be called 'Money' as it did not come from the government. A legal definition of money may be that which the government deems to be money. This means that Bank Credit is merely 'credit'. The colloquial definition of money defines 'anything that enables transactions' to be money, so it is common to refer to Bank Credit as money.

In western nations the ratio of Bank Credit to genuine government created currency, is between 12:1 and 30:1. [52] There is way more Bank Credit than there is real genuine 'currency'. More of this in later chapters. In the UK, there is 3% currency to 97% Bank Credit. [50] Worldwide, it is estimated that there is 8% currency to 92% Bank Credit. [51]

We want you to believe that our Bank Credit is the same as genuine government issued money.

The omission of the concept that 'money has no value to the creator', is one of a few items that allows banks to create credits in bank accounts for money that never existed.

The Sixteenth Flaw of Economics

   The money in bank accounts did not come from a central bank.

The Seventeenth Flaw of Economics

   The money in bank accounts is 'Credit' for an equivalent amount of currency that was never created, does not exist and never existed. It is "Bank Credit", often called "Commercial Bank Money". It is a virtual substitute for Legal Tender.

At present, my thinking is that Bank Credit is not money. It is credit for money. It is entirely different in character to physical currency. It is mathematical in nature which allows it to be negative whence it is called debt. It is fake money because it arrived with a baggage of debt that neutralizes its existence. The credit and debt live a different and separate existence but their joined origin destroys its ability to be controlled. Irrespective of whether Bank Credit should be considered as money, it is an entirely different beast to currency. It is doubtful whether it could be considered to be called Fiat Money. It gives Fiat Money a bad name.

Money is a human creation that enables exchange. For money to function, it must have a limited and controlled supply and must be universally accepted and trusted. Physical Money exists as currency which can be classified as Fiat Money or Commodity Money or Representative Money.

It can be Commodity Money, which can be anything from cows to shells to gold to silver. It can be Fiat Money, which something deemed to be money by a government. This is usually paper notes. These two are physical forms of money but both can be virtualized by entering credits in registers. Give the bank one thousand dollars in cash, and they write $1000 in a register and you now have $1000 Bank Credit. The $1000 cash has moved on to another bank client through an ATM. Get this clear: The $1000 you 'deposited' does not sit in a vault. Bank Credit is Bank Credit. All you have is Bank Credit. They owe you the money and promise to pay you $1000 sometime in the future. You are trusting them to pay you $1000 sometime in the future even though they don't have the money. Your bank balance is effectively an IOU from the bank, informing you that the bank owes you a certain amount of Legal Tender. The bank account balance is merely a listing of how much Legal Tender the bank owes the account holder. This is very interesting because there never is or was that volume of Legal Tender in the nation. The system works because people don't request their account balance to be converted to Legal Tender in large quantities.

Fiat Money

There is some confusion in the definition of Fiat Money. It is usually defined with a key statement:

Fiat Money is money, which is deemed Legal Tender by a government.

Although it sometimes has an extra part:

Fiat Money is money, which is deemed Legal Tender by a government, but is not backed by a physical commodity.

When currency is physically made from silver or gold it is called Commodity Money. Where the currency represents a fixed amount of silver or gold, it is often called Representative Money. The terms are often mixed up. When paper notes are called Commodity Money, one has to be aware that it may be 'fully backed' by silver of gold, or partially backed by silver or gold and another author might call it Representative Money.

Fiat Money tends to get a lot of bad press. It is very easy to corrupt a Fiat Money system. It is also easy to corrupt a Commodity Money system and its hybrid Representative Money system.

However, the corruption occurs when substitutes for the Fiat/Commodity/Representative Money are created diluting the Fiat/Commodity/Representative Money. The Fiat/Commodity/Representative Money is the money created by the Central Bank as coins and notes. The orange part of our graphs.

Australia Money Supply.

In the above graphs, the orange part is the Fiat/Commodity/Representative Money. The green part is confusing. It did not come from the central bank. Very little Fiat/Commodity/Representative Money is held in the bank vaults. Only just enough is held to fill ATMs and most of that comes from daily deposits by retail businesses. In any economic crisis, this conversion ceases. The conversion of green to orange ceases.

I ask you: "Is the green part Fiat/Commodity/Representative Money?" I will even ask you: "Is the green part money?"

The money supply needs to increase slightly each year to match increased population, increased economic activity and cover for Hoarded Money. "Is it the green part or the orange part that increases?"

The government part increases slightly but it is the green part that covers most of the increase. So it is expansion of Bank Credit that is the bulk of the Money Supply increase and the Bank Credit comes from loans from banks. Yet people blame the Fiat/Commodity/Representative Money for all manner of economic ills. Fiat Money, in particular, gets a bad rap for economic issues that it does not deserve. It is not the Fiat/Commodity/Representative origin of the money that is to blame but the corruption of the system by allowing Substitute Money, in the form of Bank Credit, to become so dominant. Substitute Money in the form of Bank Credit dominates our money system and constitutes between 92% to 97% of the money in circulation.

The annual increase of the Currency in Australia was ~$4 billion [to 03/2015 RBA] whereas the increase in the Broad Money was $127 billion. [RBA d03hist.xls] Yet the blame for inflation goes to the government. The talking heads state that the central bank should be kept independent of political interference. The dim wits still blame the government for economic ills.

When it goes pear shaped, all sorts of ridiculous arguments surface, such as a return to the 'gold standard'. Such a change takes us from a 'debt-ridden Substitute Money system' to another 'debt-ridden Substitute Money system'.

Any money listed in a banking or financial institution is Bank Credit and only maintains its value whilst the financial institution remains solvent and continues trading. This credit is very much like mobile phone credit. Imagine you give $1000 cash to a large phone company to get $1000 on your account. The phone company has banked and spent the $1000 within a few days on wages and whatever else. You now have $1000 of credit on your card which is entirely virtual. You owe a friend $50 and you request the phone company to transfer $50 to your friend. The phone company adjusts the credit in these two accounts. It charges a 20c fee for doing so. You have thus cleared the debt to your friend and the phone company made 20c. The phone company gets clever and allows transfers to other phone companies. Similar amounts tend to be transferred between phone companies on a daily basis. So only a small imbalance occurs between the different phone companies. So they have mutual accounts with each other, in which they record the minor differences. The phone companies get clever and offer to lend you credit for a fee. They lend you $1000 of credit and you pay back $1100, a year later. Banks operate in this same manner. They transfer credit between clients and it has the same effect as paying with money. They are not transferring money, they are transferring 'Credit'. The money has long gone.

Bank Credit satisfies the first item of the definition. Bank Credit allows transactions and does so exceedingly well. The definition of money is not worded to distinguish the essential difference with this fake form of money. Counterfeit money also satisfies the definition of money. The carton of beer often also satisfies the definition of money. The definition of money needs to be adjusted to recognise the issue of fake substitute money by bookkeeping.

As time goes by, citizens start to rely on the availability of Bank Credit. When the Bank Credit is restricted and the money supply decreases, people blame the government and the Fiat Money system. It is not the government Fiat Money that is at fault. It is the lack of Substitute Money, in the form of Bank Credit, that is the problem. It is not the Fiat Money systems that collapse. It is the Substitute Money system, otherwise called Bank Credit System, parasitizing on the back of the Fiat Money system, that collapses. In past times, it was the 'moneylenders' that loaned at interest and they were thus called 'Usurers'. These usurers loaned money, creating unpayable debt. The Usurers had their henchmen to enforce asset seizure or enslave the debtor or their children. Nowadays the servitude is not tolerated and the enforcement is done by the state on behalf of the moneylenders.

The old style enforcement is still found in local drug arrangements where drug users fall prey to their credit issuing drug suppliers, in the human trafficking in some parts of the sex industry and in some nations where employees are in unpayable debt situation to an employer. Very little is done to assist these victims of usury. In the local drug market, we actually criminalize the hapless victim.

Fiat Money

Fiat Money is money that is deemed Legal Tender by the government. Hopefully, I have demonstrated that this only includes the cash notes and coins produced by the central bank or the treasury. Hopefully, you now question whether Bank Credit is 'Money'. Hopefully, you can argue against those that state that a Fiat Money system is a failure waiting to happen.

Corrupted Fiat Money systems

Some people state that the average life span of a Fiat Money system is 25 years. The average lifespan of a corrupted money system will be less than 25 years. The lifespan of an uncorrupted Fiat Money system is much longer. There are many Fiat Money systems that lasted centuries and often with minimal inflation, even when inflation was measured over decades or centuries. The Tally Stick system was designed to avoid corruption by the usurers. This system successfully curtailed the influence of the usurers for centuries until it fell prey of the usurers in its final years of use. The usual corruption occurs when credit is issued for the Fiat Money. This expands the Money Supply, often with very beneficial results. It also creates debt back to the usurers, payable in money. This may cause dispossession and worse for the desperate borrower. With larger quantities of this usurious debt, whole nations will suffer unpayable debt and become subject to unreasonable conditions demanded by the usurers. If the usurers withhold further credit, the government can be blackmailed into accepting conditions favourable to the lenders.

Please note that:

In the event of a collapse of a usurious Bank Credit System, people revert to using government issued Fiat Money.

A 'bank run' is people demanding their Bank Credit be converted to Fiat Money. People reject Bank Credit in favour of government issued Fiat Money.

In the initial stages of hyperinflation, people convert their Bank Credit to cash/Legal Tender. In the latter stages of Hyperinflation, the banks are closed, Bank Credit has ceased to be used and the government reverts to using its cash, Fiat Money. Citizens only use government Fiat Money. Unfortunately, no-one in government is bright enough to tax the Fiat Money, causing and oversupply. Tax is generally collected through the banking system boosting the government's holdings of Bank Credit.

In days gone by, citizens were lured into debt through desperation or for business purposes and nations were lured into debt for war purposes. These days, people are lured into using the convenience of Bank Credit as a substitute for government Fiat Money. The citizens do not relate this to economic instability and the phenomenal build-up of debt.

Gold Backing

If the government claims that its money is backed by gold, the reality is: only some of its money is backed by gold and thus the money is closer to Fiat Money, than Commodity Money (often called Representative Money). If the government allows you to pay your taxes using Bank Credit from a bank account, it does not mean that the Bank Credit is Legal Tender.


Final Assessment

The most common definition of money is:

  1. Money is a medium of financial exchange.
  2. Money is a measure of value.
  3. Money may be used as a store of value.

The first item is always valid. If money does not facilitate transactions, it is not money. Items two and three are often valid but are not defining characteristics of money.

Missing from the definition is:

Going a Little Further

Money is that which enables transactions. It does not necessarily follow that everything that enables transactions is money. At the start of a money system in a nation, it is quite common to use an item that already has value. Particularly convenient mediums includes gold and silver. These two metals have some downsides. They are difficult to obtain, requiring digging big holes and using nasty chemicals. Mining soaks up significant human effort just to maintain a supply of new silver and gold. It also tends to create a permanent recession as it is difficult to expand the Money Supply as needed. It also suffers badly from hoarding. Gold and silver are too easily hoarded which then causes a steady and prolonged contraction of the economy. The money system is prone to corruption by those that obtain a monopoly or those that lend certificates for non-existant gold but who require repayment in gold. Silver and gold are true metal money. Substitutes arrive in the form of Silver Certificates issued by the government, notes supposedly backed by a fixed weight of gold and Bank Credit issued for gold that does not exist. The metal system has now become a Credit system. The notes gradually change from being credit for silver and gold to being credit for tax payments. Gold and silver metal money will maintain its value even if the government does not tax. Notes based on physical money may maintain value when backed by precious metal, but as the volume of notes starts to exceed the volume of metal, the taxation starts to be the dominant feature maintaining value.

Another form of credit arises, both in the metal money system and the government credit paper note system. moneylenders issue certificates or statements of credit for government issued money. Moneylenders issue these certificates or statement by lending them without any physical backing. The backing for the bank-credit they issue is the associated debts and the backing for the debts are the assets of their customers. The bank-credit issued by the banks is thus backed by the housing stock of the nation. They create a million units of credit with a million units of debt. The moneylenders being private do what private does best and maximise the situation to their advantage.

In the modern world, most countries are using about 5% government issued credit notes, and about 95% bank-issued credit notes. The strength and validity of the government issued credit notes last as long as the government is creditworthy and the bank-issued notes maintain strength and validity as long as the private banks are strong. Any violent swing in the ratio of 5% to 95% destabilizes the system.

In reality, the money we use in the modern world, is in fact Credit. Those with a pie in the finger, would prefer us to call it money, so we call it money. It is difficult to decide whether credit should be called money. Money might be described as that which the government deems to be money or that which it accepts as payment. the government accepts bank-credit as payment but only states that central bank created currency is Legal Tender. So it is possible that the government does not accept Legal Tender as payment of tax.

[50] Positive Money


[52] The above reference suggests 92% worldwide 92:8 = 11.5.

Positive Money suggest 97% for UK. 97:3 = 32:1