tag:blogger.com,1999:blog-7712270306362674031.post8097531587533311424..comments2023-12-14T05:29:55.758+02:00Comments on Economist's Journey to Life: Day 94: How is Money Created?Leila Zamora Morenohttp://www.blogger.com/profile/00428852564054221982noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7712270306362674031.post-25203208440173227642012-09-14T21:46:55.929+02:002012-09-14T21:46:55.929+02:00Even pegging the value of money to gold or silver ...Even pegging the value of money to gold or silver is not a solution -- as these metals still in essence merely 'symbolise' money as value but have no other value than what we agree it to be. Within that you're merely just backing up money with a different form of money so whether you have fiat money or money backed up by gold doesn't really matter.<br /><br />The problem is that the bank can merely conjure up the amount of money you require out of thin air -- while demanding of you to have actual physical assets to back up your loan. Within that the bank is making stuff up while expecting something 'real' in return from the debtor. This type of exchange is completely bizarre<br />Leila Zamora Morenohttps://www.blogger.com/profile/00428852564054221982noreply@blogger.comtag:blogger.com,1999:blog-7712270306362674031.post-74298584331635950222012-09-14T12:43:04.520+02:002012-09-14T12:43:04.520+02:00Actually, this is incorrect. Your post confuses th...Actually, this is incorrect. Your post confuses three very different but related concepts: money, wealth, and capital.<br /><br />Therefore, your statment: "We start with zero ( 0 ) amount of money" is inaccurate in order for you to make the next statement of taking out a loan of 500. <br /><br />Money is a type of collateral exchanged in lieu of capital. A loan of money is given in lieu of any capital exchanged as security. <br /><br />Thus, in order to even get a loan of say 500 dollars, one would have to begin with some capital asset that has a nominal value close to or equal to the value of the loan.<br /><br />Thus, underlying all economic exchange is the notion of capital, which is traded, exchanged, and loaned in the form of money. When capital is accumulated and debt is reduced, the total wealth of the economy increases.<br /><br />And while I agree with you on the absurdity of the Fractional Reserve Banking practices, the problem with it lies not with the fact that banks issue loans (against assets, not debt), but that the government reserve bank decides what should be the cost of borrowing these loans (i.e., interest rates). Without pegging the value of money to gold or silver, this decision to decide the value of money is entirely arbitrary and lies at the whim and fancy of the government and the reserve bank.Jerry Johnsonhttps://www.blogger.com/profile/05900661860796764587noreply@blogger.com