Fig.1: Stone money
Fig.2: modern money
This is one of the most difficult questions to answer ever. Money can be different according to the historic period you are living in; something may be money for somebody but not for somebody else. Sometimes money is a physical piece of metal, sometimes money is only a promise to pay. Today it may be even a promise of a promise to pay.
In today digital era, money can even be virtual, intangible. It is a sequence of 1's and 0's in a ledger, typically a hard disk, in one or more banks.
Can money be created? if so, who can create money? how is money created? where does money come from?
We always hear at the TV that we are full of debt, that countries have huge government debts. Is debt a form of money? Is government debt different from household debt? Or are they essentially the same, since a government is the executive branch of a country and a country is made up of families?
As you see, the more you question about the nature of money, the more you may get confused.
This is the first post of a series that I call "the money series". We will see what money is, how money is created, who is in control of it, in today's world.
We will cover (well, at least, try to cover) the following topics, not necessarily in order since I am not going to write a textbook. Some of the posts are also available in Italian.
1. Origin of money (no, it is not the barter)
2. Characteristics of money, whatever means you use as money
3. Sound Money, intro to Gold Standard
4. Fiat Money, current era
a. Origins of inequality
5. Difference between money and credit
(in English, here)a. What is money
(in English, here)b: how money is created nowadays by commercial banks:
6. Fractional reserve banking demistified: an inaccurate model
e: what are the consequences on trade between countries in a fiat money system
f: bubbles in a fiat money system: ex. Japan and China
g: how can financial crisis and wars be so frequent or long?
h. Virtual Money
i. Criptomoney, like Bitcoin
l. Technology innovation or financial innovation? root causes of raising inequality
If you may find this interesting, please leave a comment with suggestions.
I would like to stress the following point: I am an engineer, so a person with a strong technological background, therefore I started my economic studies with an important bias in the methodology for approaching finance and history of money. I used to think that technological innovation drives almost everything: this turned out to be a mistake. Technology innovation is only possible when financial tools are available. I will prove you that in this money series. I had to turn inside out some very deep convictions that I have had all my life. Literally, I had to eradicate many of the certainties I used to have (because those "axioms" were taught to me at school) in terms of progress and historical causes for wars and famines.
This is to tell you that studying how money is created may change your view of life forever: for sure, it changed mine.