the creating-debtors-theory of money…

Time for yet another ‘episode’ in my series on ‘money’. I am trying to ‘understand’ things, that’s how this episode regarding money should be read. A rediscovered old research sheds some light in the darkness.

Virtually everything today is expressed in money, and everything is also measured in money: even energy savings or climate change, solutions should provide revenues, for example. Which Is of course not at all possible , as I already found out: the revenue model is based on the use (exhaustion) of energy and material sources, so earning money from preventing them is by definition impossible. (and if it could, the problem would have been solved long ago).

But the question that constantly haunts me is, where does ‘money’ come from, who ever thought that that was the ultimate method, and that money itself had value? In an earlier review [1][2], I concluded that around 1600 the Berlage stock exchange in Amsterdam caused the misconception of money, since it aimed at trading money itself , for the first time in history. And from there took on a life of its own.[3]

But where did it come from, ‘money’, it was still not entirely clear to me.

Recently I came across a good analysis, which mapped and researched the early days of money. Research by Alfred Mitchell Innes from 1913.[4] The time when there was still a gold standard, also being the reason for his research at the time: Why was gold the money standard? was his central question.

He notes that this has happened gradually: “That this commodity [gold-rr] thus becomes a “medium of exchange and measure of value.” , and that governments began to appropriate it, first in the Middle Ages by cities and later as countries, and then abused it, for example by devaluing it, which got people into trouble. After some further analysis of how money works and how economists (also in his day) think about it, including Adam Smith, for example, he states on the basis of his own research: “that none of the(se) theories rest on a solid basis of historical proof—that in fact they are false”. Because all those theories take gold as the standard of money for granted. “The misunderstanding that has arisen on this subject is due to the difficulty of realizing that the use of money does not necessarily imply the physical presence of a metallic currency, nor even the existence of a metallic standard of value.”

And “ there is overwhelming evidence that there never was a monetary unit which depended on the value of coin or on a weight of metal”;

He notes, in 1913, on the basis of his research, that the whole idea of ​​money was, in fact, unknown to history:

The modern practice of selling coins to the public seems to have been quite unknown in old days.” It all started when :

The metal was bought by the Mint and the coins were issued by the King in payment of the expenses of the Government, largely I gather from contemporary documents, for the payment of the King’s soldiers.”

I suspected already that here was one of the explanations, for the fact that a government took control of means of payment, through payments to its considerable armies. But that can never be the whole story. Why would the baker accept a soldier’s piece of iron for a loaf of bread? It must be partly due to the fact that the same king was going to levy taxes, in metal coins, so it was handy if you got hold of some of that.

Apart from this metal exchange, it was far more important how people until then arranged things among themselves: because of course, one performs work, insofar as he makes it available to third parties, and wants to be rewarded for it, with work from another, in a different area. In the first instance, this is done through direct exchange of services and products, but increasingly often through a kind of IOUs (due bill. obligation ) . Often in the form of ’tokens’ that symbolized this. And that was by far the most important route through which mutual value was arranged. Almost every city had its own ’tokens’. They could take all kinds of forms. He describes different time periods, and in some of them there was certainly talk of coins, often local ones. But: “There can be no doubt that all the coins were tokens and that the weight or composition was not regarded as a matter of importance”.

And those systems functioned freely, without central control, to everyone’s satisfaction. That is, “there were in common use large quantities of private metal tokens against which the governments made constant war with little success”.

The actual agreement between two persons can then be described as follows: “A sale, according to this theory, is not the exchange of a commodity for some intermediate commodity called the “medium of exchange,” but the exchange of a commodity for a credit .”

So indeed: money is in fact not a “value”, but a claim, in combination with an IOU! “The law of debt”. Money is an obligation, and that is the basis not only of all communities but of all civilization, according to Innes: the principle of debit and credit, of debt and claim, which can be expunged from each other forms the real mechanism of trade. . And debit and credit has never, ever had anything to do with gold. “ We are so accustomed to our present system of a government monopoly of coinage that we have come to regard it as one of the prime functions of government, and we firmly hold the doctrine that some catastrophe would occur if this monopoly were not maintained. History does not bear out this contention” It is nothing more or less than just an agreement between two people.

As I summarize it: To have a lot of money means in fact: I collected a lot of tokens, and that is not a matter of ‘I am rich’, but of you all owe me, you all are debtors to me..!

It is not yet clear why and when exactly gold was introduced, and started to be accepted. I can imagine that it is popular as a piece of jewelry and that this is where the basis of confusion lies: Suppose that when one as a baker has too much bread, and other necessary resources have already been provided (beer, meat, etc.) via others, so there is a surplus of bread, gold can be interesting to accept as payment, for example for a piece of jewelry for the wife. So with only decorative value. No physical. The value would then be the labor put into the gold mining as an equation of the labor put into the bread. It is an exchange of labor, but not a basic functional value. And the more one (over-)produces in actual value, bread, meat, beer, the more remains for ornamental value, gold, or other immaterial things. I can imagine that this way gold was given a certain status, later exploited by ‘governments’. But that aside, this is free philosophizing and requires some further searching for the reasons. Back to the IOU:

Innes: “It is by selling, I repeat, and by selling alone—whether it be by the sale of property or the sale of the use of our talents or of our land—that we acquire the credits by which we liberate ourselves from debt .”

Money, then, is credit and nothing but credit. A’s money is B’s debt to him, and when B pays his debt, A’s money disappears. This is the whole theory of money”.

That’s all…

And a bank is basically just an intermediary and bookkeeper of debits and credits. That is, until they started ‘making money’ themselves: they gave out new money, loans, based on what they had in store (as intermediaries of IOU’s)). However, more than that, since not everyone came to claim their money at the same time, they got away with it, pumping more money into society as actual existed, and creating a society of debt. Debts, not of actual physical value, but paper debts. And that could and can only be maintained by creating more and more debts: like a pyramid scheme.

Then he still gets back to the role of gold in relation to the government: “The governments of the world have, in fact, conspired together to make a corner in gold and to hold it up at a prohibitive price, to the great profit of the mine owners and the loss of the rest of mankind”. Thats what Innes finds, after extensive research into payment systems in history, when gold was the standard, and the rest of the economists had already accepted the system, and did not wonder where it came from.

So somehow all those people and economists have come to believe that gold was the only standard, and that the government has the mandate to do so. While that is nonsense. Incidentally, we have already phased out that gold standard for several decades. Now the money is no longer based on anything….

By the arbitrary printing of money we are in fact enslaved: since that money in principle represents claims, and thus creates debt of all others to those who create/own that money (at first the gold, now the paper), or to those who create imaginary debt , as by banks as described above*. And the more money a government has or puts into circulation, for example, the more debt society actually owes to that government…. It does not represent real physical value, as we are inclined to think (and are supposed to think), but represents debt and claim, and by settling it, others inherit debt to us when we have that money , ie claim, in our possession. So we are pushing each other in stress, by constantly paying off artificially created debts, paid off by using more energy and material and labor via services and products for something that was not debt at all. By letting it provoke us to create growth, for debt that wasn’t there, but by repaying that to create real growth of debt, but then debt to the energy and raw materials system.

Ah. No wonder we over-exploit everything…. By creating claims and thus debt out of nothing, which then have to be repaid with something…

Slowly I am beginning to understand somewhat how it actually works, and how we have been fooled more and more over the centuries. And that debt and credit system was first hijacked by governments by aggressively “marketing” gold as “legal” tender, so that it looked like it had a physical value (but only helped gold miners and governments in the saddle) , later, but Innes did not know about that at the time, it was even replaced by just paper: In fact, debts and imaginary money in circulation , ran so high that there was not even enough gold to support that anymore.

Money is therefore originally a form of admission of guilt towards someone who has delivered real value: labour, land yield, etc. And also wants something in return, in the form of labor or land yield, not by definition the same. By completely decoupling money from actual performance and making a paper exercise, you actually create a climate of debt and deception among the population, and ultimately, through debt in energy and raw materials, climate change, but then real physical climate change. The only way out is therefore back to the system of ’tokens’: mutual debt and claims, based on physically useful production on common property, such as land**, of which a small surplus can then go to a government to be able to establish communal facilities deemed necessary. Facilitating, as a physical return from that surplus.

It’s all about credit and debt, money is just a concept. Just as no-one has ever seen an ounce, or a foot or an hour,” as he would elaborate in a second article: The credit theory of money. [4b] While I come to think more of it as The creating debtors theory of Money.

And that’s it for the moment, …. in my quest trying to understand money… : Additions or comments welcome.



PS: giving everyone a basic income, is an idea that I do support in principle. But not if that happens with the same money system: What you are actually doing is giving everyone free claims on the rest…. Regardless of whether there is capacity for it, to further exhaust the system.

Whereas, it is in the interest of that community to ensure that it does not exhaust its resources… So a basic income should be in kind, as part of the actual physical yield, or as a claim, but based on that yield .


*in the past, that was real debt: an effort had been made, and you were indebted to someone. For actual production. Now you go to the bank and loan money, that is, it creates money out of nothing, and you are in debt, with nothing in return. So only then you will, with that money, start really creating debt, but then physically: in the area of raw materials and energy: building, for example, so that there is something in return for that money created out of nothing. But those raw materials and energy were actually not available. At least, you don’t know, whether that was possible to use the materials resources, after all, they are not valued in the system. We now know that it was impossible, that we are all paying off debts with too much money by creating more commodity debts.


**PS The nice thing is that claim and debt only arise because someone performs or produces something, and more than he needs himself. Or because he can do something that no one else can. But it is personal. In other words, always “labor” bound. Since people have to eat and need materials, then land comes into play, as a way to perform or produce something. Land, as I analyzed before, is the real capital, It is also the ideal tool, to create Utility, for those who want to put labor into it. This is not to say that the person must also be the owner, or must be employed somewhere: the land simply belongs to no one, or to everyone. So basically everyone should be given the opportunity to perform or produce something in order to provide the community with food and material, and that through direct exchange or through tokens, claims and debt, things are settled. But those claims and debts are then directly related to what the labor and/or the land yield. With the help of natural preconditions, of course (such as local climate and solar radiation and land quality). But nothing else. Technical resources are not ‘capital’ goods but , in the end, when applied, nothing else as resources that make the deployment of labor lighter… And thus either provide more free time , or to grow the community. Provided that the labor and materials (land production) put into manufacturing those technical resources outweighs the labor and material gain from their use.

By the way, if land is common property, that’s fine. But Innes also already refers to added value created on the basis of ‘ownership’ . But where did that ownership , or property come from…? Why does one own land , and another not? On the basis of What should the latter create added value? I’ll have to dive in that and investigate that another time….






[4] From The Banking Law Journal, May 1913, pages 377-408, What is Money? By A. Mitchell Innes,

[4b] and

Author: ronald rovers