Money can be natural as in gold, seed, or silver, or it can be fiat (paper).

For an industrial monetary production economy (where money is required both to exchange labor for subsistence and to command the capacity to produce), the flaw of "natural" moneys are that they have a real value, and therefore the liquidity of the system is subject to fluctuating supplies ... gold rushes, etc.

For fiat money, the foundation of the value for fiat money is the requirement to pay taxes in the fiat currency. In an industrial economy, producers additionally need to obtain command over resources before production, and produce prior to sale, so that producers require credit. In a reserve banking system, banks are required to hold fiat money, and to use fiat money to clear inter-bank payments. This generates a banker demand for fiat money.

Producers must get their hands on money to keep from being closed down for either failure to pay taxes or failure to pay their creditors, and therefore consumers can get products with fiat money, and therefore workers can be hired and natural resources rented or acquired with fiat money.

This leverage of fiat money can only evolve if there is a free-standing value for money, and so historically it is the need to obtain fiat-money to pay taxes that is the kernel around which credit-money developed. This is why, for example, traditional names for money reflect units of weight (lira, pound, dolar) and area of land (yen) ... because the origin of money was in tax-receipts, originally stamped on clay, then on metal for durability, then on paper for greater convenience of production and transport, and finally in electronic form for even greater convenience of production and transport.

The flexibility of a fiat money system also implies a lack of anchor, while a complex decentralized system of production is intrinsically susceptible to cyclical swings in effective demand for the production of private business.

Two anchors that would serve would be a low and stable cash rate for money, and a public job guarantee at a living wage. However, those two anchors in the public interest are at odds with short term vested interests of the finance sector, who wish to see returns on wealth accumulation rise, and therefore an increase in the profit share of income to allow productive enterprises to pay higher interest out of higher gross profits.

Of course, it is impossible for a share to expand indefinitely, so in a period when the short term vested interests of the finance sector are given free reign, the pursuit of that short term vested interest rebounds to undermine their long term interests ... at which point they squeal to be bailed out.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.