The Survival Economist
Premiered May 21, 2021
With the possible exception of international trade, no topic in economics contains more myths than monetary theory. In the present article I address four popular opinions concerning money that suffer from either ambiguity or outright falsehood.
One: “Money represents a claim on goods and services.”
Although there is a grain of truth in this view, it is quite simplistic and misconceives what money really is.1 Money is not a claim on goods and services, the way a bond is a legal claim to (future) cash payments or the way a stock share is a claim on the net assets of a company. On the contrary, money is a good unto itself. If you own a $20 bill, no one is under any contractual obligation to give you anything for it.2
Now of course, in all likelihood people will be willing to exchange all sorts of things for your $20 bill; that’s why you yourself performed labor (or sold something else) to obtain it in the first place. Nonetheless, if we wish to truly understand money, we must distinguish between credit liabilities on the one hand, and a universally accepted medium of exchange (i.e., money) on the other.
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