Defining Money and Productive
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NO REAL MONEY

There are not two kinds of money. There is not 'real' money from 'production', and 'unreal' money created by governments. All money is legal tender issued by governments.

"All currency in circulation in Canada is fiat money...   legal tender by government declaration and is not backed by gold or silver. Its intrinsic value is divorced from its monetary face value (i.e., the value stated on it), which rests on public confidence in the issuing authority—usually the central bank." (Bank of Canada )

However, most money in circulation is created when banks make loans. (See Money as Debt.) But this does not mean that this is 'private' money.

"The banks exist because they have a charter from Parliament. They are subject to public regulations through the Bank Act... Banks may be privately owned, but they are public institutions." (Duncan Cameron, Canadian Centre for Policy Alternatives, Canadian Forum, March 1997. Reprinted in Monetary Reform Magazine, Spring 1997.)

SO WHAT IS MONEY?

Money is a human invention. (It is not a natural law; gravity is a natural law.)

"So Aristotle calls money a creature of the law. Not a commodity from nature but an abstract social institution. Its essence is not tangible wealth in itself, but a power to obtain wealth." (Stephen Zarlenga, The Lost Science of Money: Introductory Remarks to Speech at US Treasury, Dec. 4, 2003)

"Aristotle mentions ...'Money has become by convention a sort of representative of demand; and this is why it has the name 'money' ('nomisma') -- because it exists not by nature but by law (nomos) and it is in our power to change it..." (Stanford Encyclopedia of Philosophy)

"Money... the instrument which men have agreed upon to facilitate the exchange of one commodity for another." (David Hume, "Of Money" 1752)

"We often speak of someone 'making money,' when we really mean that he or she is receiving an income. We do not mean that he or she has a printing press in the basement churning out greenbacked pieces of paper." (Milton Friedman, Money Mischief, 1994)

WHAT DETERMINES MONEY SUPPLY?

There is no law linking money supply to Gross Domestic or National Product (GDP, GNP) or any other attempted measures of 'productive' output. There is no gold standard (the convertibility of currencies into gold which limited the money supply to the gold supply), that was abandoned in the 1930s. There are no bank reserve requirements in most countries. Assets can now be defined to include intangibles and tangibles.

"In the new economy, the most valuable assets have gone from solid to soft, from tangible to intangible. Instead of plant and equipment, companies today compete on ideas and relationships. Assets come in the form of patents, knowledge, and people. These kinds of assets are soft and squishy, and number crunchers and bean counters hate them." ( Bill Birchard, Fast Company, Sept.1999)

In addition, with the increase of digital products — which have infinite productive capacity — there is no way to rationalize the money supply to have it correspond to production.

Next ... Real money doing unreal things