Alberto Veronese, October 29, 2016
where does money come from? most people tend, to assume, that some law of nature, guarantees an unchanging supply of it.
and when someone suggests that perhaps, there should be more or less money, many react as though he were proposing to meddle with nature, or profane the sacred.
money is a manufactured, item. the amount of money available to the economy, is determined by the manufacturers.
this amount influences business activity, incomes, prices, and economic growth.
the interest rates of money, are the very prices bankers charge for the use of their product, money.
the federal reserve system, is the control, organization, guiding the money manufacturing process. the system was created by congress, and is a creature of that body.
many believe that “money”, comes into being, first, and is then deposited in banks. the bank must then take a certain portion of this money and send it to a central bank where it is kept, in compliance with the reserve requirement.
the truth is however that the private banks, collectively, have deposited not a penny, of their own funds, or their depositors’ funds, with the central bank.
by and large, all their deposits — reserves — at the central bank are created by the central bank. and credited directly to their various accounts.
the power to create money is given to the federal reserve, by congress. this is the case. the federal reserve system is an agency of congress, authorized to create money.
there is no mystery about this. most of the u.s. money, in existence — currency, coin, and demand deposits — belongs to citizens of the united states.
they cannot, exchange their dollars for gold, or anything else. they can exchange them only, for other dollars. these dollars are, obligations of the u.s. government.
from a much more basic point of view, the dollar is backed by the credit of the u.s. government, and accordingly, by the credit, and assets of all its citizens.
the ‘dollar’, is good for the payment of taxes. the dollar, can be exchanged for “many types of commodities”, including gold, as well, as for housing, professional services, and labor.
since the purpose of money, is to make it easier for a nation to produce real goods and services, the money system should be controlled in ways which serve these purposes, best.
for example, it is very important, to have the right amount of money available at all times. too little money and too much money are both bad.
it is the people, acting through their government, who make the important decisions about money, from what they will use. to who will create it.
the citizens of a country, would indeed be foolish, to select a monetary system, which leaves the amount of money to accidental discovery of gold — or serving only banking, interests.
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“How Much Money Is Out There?”
“A Primer On Money” by Wright Patman, 1964