Simple Liberty  



Monetary Reform

Chapter 2

The Concept of Money

Written by Darrell Anderson.

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

John Maynard Keynes, The Economic Consequences of the Peace

The topic of money probably is one of the most contentious topics ever discussed yet plays a most integral part in all modern social systems.

Money is a psychological concept representing a system of measurement.[1] Like all units of measurement, nobody can touch or see a number, an hour, an inch, a kilogram, or money.[2] Frederick Soddy said that, “Money is the Nothing you get for Something before you can get Anything.”[3] The concept of money does not exist except between our ears. Yet, humans create ways to physically represent concepts, such as an abacus, a clock, a ruler, a scale, and currency. These representations are token representations, and not actually the concept.

Many people incorrectly use the words wealth, money, and currency interchangeably. Distinguishing the terms is important.

Money: anything that is used as a medium of exchange.[4]
Currency: the physical thing that circulates commonly as a medium of exchange to represent the concept of money.[5]

In an exchange of wealth where a general currency is used, one party receives wealth and the other party usually receives currency. Regardless of form or substance, currency serves only as a token reminder of an unfinished exchange of wealth. Currency is a token symbol physically representing wealth not yet received. Thus, all currencies are token symbols of debt, not wealth.[6] All currencies are physical representations of debt. Therefore, these tokens are abstract symbols representing past production.[7]

Part of the flaw with modern monetary systems is an incorrect belief that currency is wealth.[8] The concept of money is a psychological creation. The things used to represent that concept — currency — are token claims on future wealth.

Because all currencies represent an unfinished exchange of wealth — unclaimed wealth — a general IOU — currency represents virtual wealth. That is, currency represents wealth not yet in possession.

A mattress stuffed full of currency is not wealth, but a claim on wealth not yet received. The thing used as currency — such as coin or paper — is property but is not wealth. Currency, regardless of form or substance, representing an unfinished exchange of wealth, can be “backed” only by wealth. One form of currency can be exchanged for another form of currency, but all circulating currencies represent the same unfinished exchange of wealth. Although debt — existing in the imaginary realm — cannot be exchanged between people, currency — the thing representing the debt of that unclaimed wealth — can be exchanged.

All currencies — regardless of form or substance — are IOUs. Common circulating currencies differ from private IOUs in two ways:

  1. Private IOUs typically specify both the amount and kind of wealth to be paid.
  2. Currency represents title to a specified amount but unspecified kind of unclaimed wealth.

General currencies do not specify participating parties. Private IOUs are limited to assigned parties or the bearer and issuer, general currencies circulate throughout an entire community of people without a specific bearer or issuer. Unlike private IOUs where a claim is made against a specific individual, a general currency is used as a claim on the general wealth of the community of people using the currency.[9]

A general circulating currency is a mutually shared utility of any community of people. Currency is the grease to help turn the gears of wealth. A private IOU is evidence of an unfinished exchange between specific individuals, whereas currency represents an unfinished exchange between the holder and all participating members of a society.

Because of improved technologies and innovations, and a general overall desire to be prepared for “rainy days,” humans prefer to overproduce — they produce more than they personally consume. Regardless, there are natural limits to consumption and natural limits to storing wealth. Therefore, humans often exchange the excess for other forms of wealth. The excess production of a good represents other forms of wealth not yet owned that could be owned. Individuals can directly exchange their excess production for other wealth, but instead often exchange that excess wealth for currency. The accumulation of currency represents future exchange power. Recall that power is the rate at which work is performed and is a way to monitor the flow of energy.

Notice the term exchange power is used, not purchasing power. All people exchange wealth for wealth, and use monetary currencies only as a transitional stage in that process. A silo full of corn represents exchange power and does not need a common currency to create that exchange power. Markets are nothing but exchange networks.[10] A market is an abstract concept encompassing the trading arrangements of buyers and sellers.[11] Like so many words that are reified, a market is not a thing but a description.

When a general circulating currency is used, wealth usually is not exchanged directly for other forms of wealth. Because currency represents an unfinished exchange of wealth, a general circulating currency represents the aggregate wealth that people have chosen to abstain from immediately owning.[12] Accumulating currency — savings — is only delayed consumption of wealth; that is, abstaining today but consuming tomorrow. Because wealth exists in the real world and debt exists in the imaginary world, the subjective exchange value of wealth determines the exchange power of a specific currency — currency does not determine the value of wealth.[13]

Because all wealth is a form of stored energy, and currency is a token symbol of an unfinished exchange of wealth, currency is a token symbol of an unfinished exchange of stored energy. Unlike actual wealth, currency — virtual wealth — is a token representation of stored energy and is not subject to decay. Although paper and coin are physically subject to decay, that decay is meaningless with respect to the expected lifetime of a human. Additionally, a coin or paper currency can be replaced if excessively worn from circulation. Lastly, simple bookkeeping exchange systems (checkbook or digital currency) do not require physical currency. Not being subject to decay explains the enormous popularity of precious metals as a medium of exchange. Being not subject to decay means currency often is perceived as more valuable than possessing actual wealth because currency provides more liquidity than actual wealth.

The concept of debt is imaginary, representing something not yet owned. Currency, and the virtual wealth a currency represents, both exist in the physical world; the debt the currency represents does not.

A difficult challenge for many individuals is understanding that these definitions apply to all currencies, including gold and silver coin and paper currencies.

Gold and silver are commodities.[14] Commodities are tangible objects intended to be consumed in some fashion or manner.

A quantity of gold or silver — whether as dust, a nugget, or molded into the shape of a bar or coin — can represent either the concept of money or be used as a commodity, but cannot be both simultaneously. A commodity can be consumed or exchanged. Intent is controlling. Despite being a commodity, if a gold or silver coin in your pocket is seen as currency — a medium of exchange, then the coin is:

  • A token symbol of debt.
  • Represents an unfinished exchange of wealth.
  • Represents virtual wealth and not wealth.
  • Is intended to be circulated within the community as a claim on the wealth of the aggregate community.

When viewed as a commodity, the gold or silver in the coin is wealth — something that can be and is intended to be consumed, but no longer serves as currency, the coin being destroyed in use as a commodity.

Currencies of one type can be exchangeable for other forms of currency. Sometimes individuals refer to this exchange as being “redeemable.” However, people are only exchanging one form of currency for another. Whether an individual possesses gold or silver coin, paper currency, or the electronic digits of checkbook money, the function of the currency does not change. The paper, coin, and electronic digits represent an unfinished exchange of wealth.

If an individual views gold or silver coin as wealth (a commodity) and not as a token symbol representing debt, then wealth is exchanged for wealth. If an individual sees the coin as currency, then there is an unfinished exchange of wealth. Thus, to argue that a paper currency must be “backed” by gold or silver coin or any other commodity is meaningless.

Another challenge for many individuals is that in direct exchanges of wealth the concept of money is still used without using a general circulating currency. Between two individuals, trading two geese for a goat does not use a general circulating currency, but still uses the concept of money. The goat is used as a medium of exchange to obtain the geese. The geese are used to obtain the goat. That both the geese and goat are wealth and commodities does not modify the fact that the concept of money is still used — despite not using a general circulating currency. Money is any thing used as a medium of exchange, and currency is only the thing that circulates generally or commonly as a medium of exchange.

If a third individual enters the picture and the goat is subsequently traded for some chickens or eggs, then the goat might be a common medium of exchange and could be classified as a general circulating currency.

In this example, by definition, all parties are buyers and sellers. Notice too, that when wealth is immediately exchanged for wealth, no debts arise through the exchange because currency is not used. However, if the goat was seen within that community as a common circulating currency, then a debt does indeed arise if the goat represents an unfinished exchange of wealth. Yet, goats are consumable, thus, if a goat owner consumed the goat then the goat is removed from general circulation, stopped being currency, and represents a completed exchange of wealth. Currency only represents an unfinished exchange of wealth.

Understanding this example goes far to explain why nobody has or can provide a definition for money other than as a mental image. Buyers and sellers might use the concept of money but only by using tangible or intangible objects to represent the concept. Any object can serve as a medium of exchange, but between a single buyer and seller only those individuals can decide. Currencies can be defined only by a group of common buyers and sellers.

Because all general circulating currencies are mutually shared instruments of utility, all currencies, regardless of form or substance, depend completely upon confidence.[15] This is true even of gold and silver. Consider that today many people would not accept gold or silver coin because they are unfamiliar with that form of currency and thus, have no or little confidence — despite broad previous usage. Gold and silver coin have lost their “currency” meaning the coins no longer are currently in general circulation as a thing used to represent the concept of money.

Notice that a generally circulating currency need not possess commodity value but only be confidently accepted as a medium of exchange. Today’s checkbook currency is nothing but electronic digits in computers. General confidence in that method of exchange is high.

Many individuals argue that if everybody in the world extinguished their debts then no currency would be in circulation. Such a declaration should not be one of exclamation, surprise, or dismay because the statement is a truism. If currency exists only to facilitate the exchange of wealth, and currency is a token symbol of debt and represents an unfinished exchange of wealth, then currency enters into circulation only when there is an unfinished exchange of wealth. Thus, if everybody extinguished their debts there would be no currency in circulation. This is exactly how any circulating medium of exchange should function. Currency is a token symbol representing an unfinished exchange of wealth and can exist only when there is such an unfinished exchange. If all exchanges of wealth were finalized then no currency would be in circulation. Thus, such a statement affirms the very purpose of currency and exposes the illusions of the “vanishing currency” charlatans.

Exposing this misconception is possible through another example. In Eric Frank Russell’s classic 1951 science fiction novelette “ . . . And Then There Were None,” the inhabitants of the planet used obs to track wealth exchanges. As explained in that story, obs was verbal short-hand for obligations. That exchange system was an unwritten IOU system — physical currency was not used. Obs were not tangible, nor physical IOUs, but “recorded” only in each individual’s mind. Obs were another way of declaring a debt was owed. Each individual was responsible for tracking personal exchanges of wealth. In Russell’s story, an individual who accepted community help to build a house owed several years’ worth of obs to those who helped. The concept is not so ridiculous; people today “plant” obs on one another on a regular basis — you help your neighbor build a porch deck, and your neighbor then helps you. Such a system model is merely exchanging wealth for wealth without the intermediate usage of a currency. Excluding charity and theft, all people exchange wealth for wealth or exchange wealth for temporary debt.

Ultimately, people expect to exchange wealth for wealth and use currency only as an intermediate device. Thus, when a general circulating currency is used, every piece of currency is property and belongs to somebody, but the currency system belongs to nobody in particular. This makes any currency system a true mutually shared utility of the economic community, both usage and ownership.[16]

Everybody expects to ultimately exchange wealth for wealth, not currency. Currency is merely a temporary medium through which people exchange wealth. Currency merely helps everybody track their exchanges. Currency represents stored energy not yet owned. Whether currency or obs, both represent debt, not wealth.

The concept of money is a function of social systems.[17] The concept of protecting wealth exchanges is a function of legal systems. Yet, many social problems arise by confusing currency with wealth.


Terms of Use

Next: Chapter 3 — The True Cost

Table of Contents



[1] Barnard, Draining the Swamp, p. 9.

[2] Barnard, Draining the Swamp, p. 12.

[3] Soddy, Frederick, The Role of Money.

[4] Thoren and Warner, The Truth in Money Book, p. 4.

[5] Barnard, Draining the Swamp, p. 10.

[6] Barnard, Draining the Swamp, p. 27.

[7] Fromm, The Sane Society, p. 112.

[8] Barnard, Draining the Swamp, p. 27.

[9] Soddy, Wealth, Virtual Wealth and Debt, p. 134.

[10] Toffler, The Third Wave, p. 39.

[11] Gwartney and Stroup, Economics, Private and Public Choice, p. 43.

[12] Soddy, Wealth, Virtual Wealth and Debt, p. 140.

[13] Soddy, Wealth, Virtual Wealth and Debt, pp. 139–140.

[14] Gonczy, Modern Money Mechanics, p. 3.

[15] Gonczy, Modern Money Mechanics, p. 3.

[16] Barnard, Draining the Swamp, p. 44.

[17] Kinley, Money, pp. 1–13.