What is money?

We spend a lot of time thinking about money, one way or another. We think about how to get our hands on it, how to keep it safe and how to spend it. When we aren’t asleep, there’s a good chance that we’re paying attention to money. But while money is never far from our thoughts, there is something curious about our relationship with it. For all that we use it to get through the day, most of us don’t know what it is.

I mean, we know what it can do. We know how much we have, more or less. We know what things cost and so we have some idea of what we can afford at any given moment. When we start thinking about the future, how long we might live and how much money we’ll need, we tend to want to think about something else. But money itself escapes our calculations. For the most part we don’t think to ask where it comes from or what it is, in itself. The advantages of having money and the consequences of having none loom so large that we seldom stop to wonder about money as such.

Today is as good a day as any to explain where money comes from and why it matters. On Thursday, the Bank of England announced another £75 billion of “quantitative easing”. If you don’t know what that means or vaguely think it has something to do with “printing money”, it is probably because you don’t know what money is. All will be revealed in what follows. OK. Are you ready to know where money comes from, to know the truth jealously guarded from the dawn of recorded time?

Money is lent into existence by banks

There’s nothing complicated going on behind the scenes. The great secret is that there isn’t really much of a secret. Yet the truth about money eludes us for most of the time.

The economist and ironist JK Galbraith once wrote that “the process by which banks create money is so simple that the mind is repelled. When something so important is involved, a deeper mystery seems only decent”. Offered the unadorned truth, stripped of any technocratic flim-flam, we can scarcely believe it. It seems preposterous that money should have such humble origins, as though it is beneath money’s dignity that it should begin life at a banker’s keystroke.

Click below to read the entire article:

via What is money? – Opinion – Al Jazeera English.

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