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by James Corbett
BoilingFrogsPost.com
December 4, 2012

Money. It defines and shapes our lives. We spend the formative years of our lives training how to get it, the productive decades of our lives working for it, and the closing years of our lives worrying whether we saved enough of it. It is the backdrop of our economic existence and we all use it each and every day.

But still, how much do we even know about it? As independent reporter Jeff Swanson discovered at last year’s Occupy Vancouver protests, even those who claim to be protesting the current system don’t know the basic facts about money’s existence or where it comes from.

Sadly, these types of befuddled responses about the underlying nature of our economy is by no means limited to any particular group, party or political affiliation. Instead, it is a widespread, pervasive ignorance that has been bred into us by a system that does not teach even the basic facts of economic history and often uses confusing, jargon-laden terms to obfuscate basic ideas.

Ironically, the simplest question of all is perhaps the most difficult for many to understand: What is money?

Our confusion over the nature of money comes from an historical contingency: in our economy, the dollars or pesos or yen circulating through the marketplace in fact serves three separate roles at the same time:

Firstly, and most obviously, it is a means of exchange. In the US context, legal tender laws mandate that federal reserve notes by accepted for all debts, public charges, taxes and duties. This makes it is a reliable, universally accepted instrument for exchange.

Secondly, the dollar simultaneously serves as a unit of measure. Given its recognizability, products are priced in dollar units.

Thirdly, the dollar serves as a store of value. Dollar earnings can be stored and used later to purchase products at some later date.

Just because these three functions seem identical to us in our current economy, however, does not mean that all three roles have to be fulfilled by the same instruments, or even that they should be.

Most people are aware that the dollar’s utility as a store of value is highly questionable. Even if they don’t understand why the value of the dollar is constantly falling, they know enough to invest in stocks, bonds, and commodities instead of keeping their long-term savings in dollars.

But what about having the unit of measure also act as a means of exchange? Is this advisable? A builder is never prevented from constructing a house because of a shortage of inches, but people are often prevented from buying because of a shortage of dollars. If there is interest in a product and the underlying productive economy is sound enough to support such transactions, why do money crunches occur and why do they prevent people from transacting?

But this leads to another important question: In this age of panic over the sovereign debt crisis and the fiscal cliff and the debt ceiling negotiations, we are bombarded with talk of government money printing and images of the printing press, but how many people know that only a tiny fraction of money in the economy is actually in the form of bills or coins? And if money isn’t, for the most part, literally printed into existence, then where does it come from?

Last year I had a chance to discuss the nature of our current debt-based economic system with Paul Grignon, the filmmaker behind the Money as Debt documentary series.

Once these frauds are identified and revealed, the moral bankruptcy and underlying lunacy of our system are laid bare for all to see. In a system where money is created by bankers out of our own promise to pay them back, at interest, it is self-evidently always the case that more and more of the hard assets and real value of the economy will be transferred from the working, productive classes to the financial speculators at the top of the system who literally create the money and toy with the credit that is our economy’s lifeline. Given all of this, is it at all surprising that we have arrived at this situation where economic crises are followed by multi-trillion dollar bailouts of financial institutions while more and more people fall into debt, foreclosure and unemployment?

The question, of course, is how to transition from this system to a more rational one, an economy that actually rewards productive work and allows the growth of the money supply in line with people’s actual needs. This is a question that we will turn our attention to in next week’s edition of this series.

For the time being, it is enough to note that at times it is the simplest questions that turn out to be the most difficult for many to answer, and if we are being told not to ask such questions as what money is or where it comes from, perhaps there is a reason that the powers that be don’t want these questions being contemplated.