To answer this, let's start by looking at what money is not.

Although people often think of money the way they think of gold or silver, it's easy to see that money is really not made from any precious materials. It's true that coins are often made to look like gold and silver, but that's really only for effect. In reality, not only is money not made of precious materials, most money isn't made of any materials whatsoever; most money doesn't exist in physical form at all.

Most money is just numbers in accounts within the banking system. They really are just numbers; there are no corresponding piles of notes or coins, or gold or silver, being kept in vaults. The numbers are all there are. The question, then, is what are those numbers? What are they measuring and where do they come from?

The numbers measure a legal 'title' or 'claim'. Someone who has money has a measured claim within society. And that means society itself, or some part therein, has a corresponding debt to that person. It can be difficult to grasp at first, but money measures out the two sides of a legal relationship: on one side claims, on the other side debts.

That's why we say money is debt. Like any debt, money has two sides: someone who owes and someone who is owed. Money exists as a record of a debt; it comes into being when someone goes into debt and remains in existence only for as long as the debt remains outstanding.

You may know that money is 'creditary', or 'promissory' or like an IOU ("I promise to pay the bearer..."). These words all describe the same thing, the debt-based nature of money: a legal relationship with a debt on one side and a claim on the other.

This is a reciprocal system in which money exists only to occupy the space between giving and receiving. And it is a truly ancient foundation for trade. Money comes into being when somebody makes a 'promise to reciprocate' (i.e. takes on a debt) and will cease to exist again when the debt/money is repaid.

Economists call this 'endogenous' money creation or "money creation by banks". What it means is that banks create the money we need 'on demand', simply by recording our debts into being. We, then (and in fact our governments too), do not actually 'lend' or 'borrow' other people's money in order to facilitate debt. And it is for that reason that everyone's access to money should be interest free.

An Example

In our world today, almost nobody could have a home if it weren't for financing and debt. So debt is very important to us. Many people every day use debt to buy a home; they take out a mortgage. If you were selling your house and I needed a mortgage to be able to buy it, where would that money come from?

My bank would create that money, simply as a deposit in my account, when I ask for it, when I sign myself into a mortgage agreement and into debt.

And when that new money is transferred to you, you will be the holder of that many new claims within society. I will be the holder of the exact same amount of new debt. (But I will also now have the house.)

Those numbers (see image →) were created during the process and they are money. The idea that money should somehow be different to that, that money should be physical, or that someone should have to root around to find some already-existing money to 'lend' to me is, by comparison, very backward and very problematic. Not only would it be inconvenient and very expensive, it would set up some of the most corrosive relationships that have ever existed within society.

Creating money on demand cleverly solves many of the most important problems in finance. One very important problem remains, however: Most people don't understand it, because they simply aren't taught about it. And it's this that has allowed for the development of harsh economic injustices all around the world.

Just as we're being led to believe we're "borrowing" when money is created for households/individuals, so too are we led to believe the same about public debts/financing. Governments also "borrow" money into existence and record it as a debt with interest due. This results in large, expensive national debts which undermine public services and which taxpayers pay heavily to service because they don't know they shouldn't have to.

In practice, major financial operations like banking could never operate on physical notions of money and actual lending and borrowing. Money will inevitably resolve to its most efficient form: simply numbers created 'on demand' to record who owes and who is owed.

For that reason, the 'debt-based' nature of money is just a simple practical reality. But, as you've seen, it also offers us our greatest opportunity for economic justice and economic rights. It is through this type of money that we all share a common platform upon which our debts and our trades are facilitated, not by lending and borrowing, but by simply recording numbers into and out of existence on paper or on a computer screen.

And that really does mean most of our debts should be interest free. The money we already have really should support a very different type of economics, very different economic relations and very different economic outcomes, all around the world.

Money should work much more for everyone. Money can and should be at the foundation of all people's real economic rights. Every person, as well as every government, should have a democratic relationship to money and access to money on democratic terms, free of unnecessary lender-borrower relations and free of interest.

Basic Economic Literacy

Covered in these slides are the basic components of our basic economic literacy - the 'abc' of economics. You can read deeper into the subject on the next page of the website, but I hope you now have a better idea of what money really is, where it really comes from and how banks and debts, in reality, basically work. We all have the right to understand, to be taught, those things.

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