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It's a commonly stated interpretation but it doesn't really make sense. How is "debt" defined if we're defining money as debt? * The dictionary gives me "debt

It's a commonly stated interpretation but it doesn't really make sense. How is "debt" defined if we're defining money as debt? * The dictionary gives me "debt (n): a sum of money that is owed or due". To define (or even describe) money in general as debt with this definition is obviously circular. * If you simply define "debt" as "money" then to define "money" as "debt" is obviously even more directly circular. The point being made isn't really wrong or unhelpful. As you say, a person's bank account is a liability of the bank, so to say "I have money in a bank acccount" really means "the bank has an obligation to me", and a lot of "money" is like this. Not all, though: cash and bank reserves can't (in the modern world) accurately be described as debt in the sense of "somebody owing somebody money" (and it's debatable whether even an individual bank account is fully describable that way). There is no easy, trivial definition of what money is. Probably the most general view is that it represents some sort of obligation or claim the person who "has the money" holds over others. That's a valid insight, but it's too general to be a definition as it's also satisfied by many things we don't generally think of as money, eg. train tickets or stocks. The "money is debt" notion is, I think, an attempt to express this useful-but-too-general "claim or obligation" idea, but given people usually think of "debt" in a much more specific sense as "money owed" I don't think it's terribly helpful for people who are struggling with what money "is". At best, I think it would have to come with a lot more explanation of exactly what is meant by "debt" in this context, and would need caveats to avoid being overly broad.

beefield 4y ago
I think the issue is more how "is" is defined. I like to think with following analogy: A knife can have lots of properties. A knife is sharp, long, dull, rusty etc. But fundamentally (Don't know if there is a better word for this) a knife is a piece of steel[1]. Similarly money has properties like being store of value, medium of exchange, unit of value, bits on a database of a bank etc. And fundamentally money is debt. Not all debt is money, though, but only debt with a set of specific properties. To add to the mess "what money is", if you go technical, you find there are many definitions for money, that is, many sets of properties that can be money (see e.g. M0, M1 etc.) [1] Obviously, there are knifes made not from steel, but I hope you get the point anyway.
- lake_vincent 4y ago
  I am trying to have this make sense in my head, but I agree with the other commenter that "money is debt" doesn't feel right. I think more fundamentally, money is simply the capacity for goods and services to be exchanged between humans. Anything that facilitates a trade can be considered money. Just like how in physics, the best general definition we have of "energy" is simply the innate capacity for change in the universe. If I stumble upon a gold bar in the forest, that's not a debt. It does, however, have the potential to get me what I want. I could, in theory, turn it into a debt, or I could just spend it immediately on a bunch of cows.
  - beefield 4y ago
    There are two problems with your definition: 1. The definition differs significantly from what people usually call money. Gold bar is a gold bar, not money. 2. It makes anything money. I can barter a basket of apples to a fish -> apples are money. That makes it difficult to create useful and interesting observations about the thing we usually call money.
    - lake_vincent 4y ago
      You're exactly right, but that's kinda my point. I think my definition is quite fundamental, and holds true all the way back to the beginnings of finance. We used to just trade directly - trading horses for maize, etc. But then humans realized that having anything be money is inefficient, so we invented currency as a locally acceptable surrogate for whatever humans value. But it's still rooted in humans exchanging goods and services they find valuable, for whatever reasons.
      - dekervin 4y ago
        I tend agree with you. I have a personal definition that allow me to derive a lot of properties with simple game theory, and explain why a gold bar is great money: money is a "desire" accumulator.
notahacker 4y ago
The circularity isn't really a problem here, since the flow of money is a circle. Money is the token used to repay the debt, but the token is created because someone else has gone into debt. They in turn will need to obtain money which is the debt of someone else somewhere up the chain. (Even if it's bank reserves and cash, in well functioning modern economies they're injected by the central bank monetising existing debt, usually government debt.) It's probably more strictly true to say that having money is the credit extended in the credit/debt relationship, but they're two sides of the same coin.
usefulcat 4y ago
I think the “money is debt” idea comes from the way that money is created, which is via lending. My understanding is that when a bank lends money, they don’t deduct money from the accounts of any of their depositors. They create the loan out of thin air (or out of the borrower’s promise to repay, if you like). Likewise, when the loan is repaid, the money that goes towards the principle is effectively destroyed, and the lender keeps the interest.
brnaftr361 4y ago
Money as in the unit of account is something worth nothing, it must be worth nothing to act as a tool to evaluate the differences of value. This is liable to be debated: but for example, gold is pretty worthless and the mechanism by which it was appraised as valuable, at least the explanation I find to be the most compelling, is the Chartalist position. Wherein the government issues the currency, but demands it back in the same currency units as tax. Otherwise, gold is sort of just a social status luxury good which you pay a lot of money for but is worthless in any other context. Prior to currency you could pay tax in various commodities or as corvée labor - it does however indicate an intrinsic and continuous debt to the state. Now if we look at the anthropological record the pretensions that people were bartering before the advent of currency disappears, and it appears that it was actually a system of credit/debt - of favors within a community. And that's where the issue arose. How do you guarantee an extension to a foreign party? A traveler or a soldier? And that appears to be when barter was deployed. I think this is an important aside here because it really does underline what money was intended for a guarantee. Of course there are other aspects like portability and storage that also contribute to the nicety of currency. Finally to the point, China was actually the first known culture and eventually nation to have deployed fiat currency, and it emerged from credit-derived checks. Those debts were transferred from one person to the next informally. "Tallies weren’t just used for loans, but for any sort of contract—which is why early paper contracts also had to be cut in half and one half kept by each party. With paper contracts, there was a definite tendency for the creditor’s half to function as an IOU and thus become transferable. By 806 AD, for instance, right around the apogee of Chinese Buddhism, merchants moving tea over long distances from the far south of the country and officials transporting tax payments to the capital, all of them concerned with the dangers of carrying bullion over long distances, began to deposit their money with bankers in the capital and devised a system of promissory notes. They were called “Flying Cash,” also divided in half, like tallies, and redeemable for cash in their branches in the provinces. They quickly started passing from hand to hand and operated something like currency. The government first tried to forbid their use, then a year or two later—and this became a familiar pattern in China—when it realized that it could not suppress them, switched gears and established a bureau empowered to issue such notes themselves."[0],[1] [0] Debt: The First 5,000 Years, David Graeber [1] https://en.wikipedia.org/wiki/Flying_cash https://en.wikipedia.org/wiki/Flying_cash
tenthirtyam 4y ago
> How is "debt" defined if we're defining money as debt? When you obtain a loan from the bank, you are conveniently paying back in the form of fiat currency, which you have earned through your labour. But if you fail to meet the payments, then the real debt emerges - the collatoral (your house, car, etc). In this sense "debt" is just reinterpreted as "owing an agreed resource" which, for the most part, is conveniently valued in USD/EUR/etc. The short film "Money as debt" was the eye-opener for me. It's probably still available on youtube somewhere. I urge anyone looking for a light-hearted, but apparently factual, introduction to start there.
imtringued 4y ago
Money in the form of a one dollar bill is effectively a perfectly liquid perpetual treasury bond with a fixed interest rate of 0% that the central bank issued. In the modern economy where commercial banks create deposits through loans, the borrowers don't owe anyone money other than the interest payments on the loan, paying the loan destroys the deposits that were created through the debt. The borrower owes products and services, not money, to the holder of the liquid claim on that debt. The borrower gives up his products and services willingly because he must pay his debt with money.

beefield 4y ago

I think the issue is more how "is" is defined. I like to think with following analogy: A knife can have lots of properties. A knife is sharp, long, dull, rusty etc. But fundamentally (Don't know if there is a better word for this) a knife is a piece of steel[1]. Similarly money has properties like being store of value, medium of exchange, unit of value, bits on a database of a bank etc. And fundamentally money is debt. Not all debt is money, though, but only debt with a set of specific properties. To add to the mess "what money is", if you go technical, you find there are many definitions for money, that is, many sets of properties that can be money (see e.g. M0, M1 etc.) [1] Obviously, there are knifes made not from steel, but I hope you get the point anyway.

lake_vincent 4y ago
I am trying to have this make sense in my head, but I agree with the other commenter that "money is debt" doesn't feel right. I think more fundamentally, money is simply the capacity for goods and services to be exchanged between humans. Anything that facilitates a trade can be considered money. Just like how in physics, the best general definition we have of "energy" is simply the innate capacity for change in the universe. If I stumble upon a gold bar in the forest, that's not a debt. It does, however, have the potential to get me what I want. I could, in theory, turn it into a debt, or I could just spend it immediately on a bunch of cows.
- beefield 4y ago
  There are two problems with your definition: 1. The definition differs significantly from what people usually call money. Gold bar is a gold bar, not money. 2. It makes anything money. I can barter a basket of apples to a fish -> apples are money. That makes it difficult to create useful and interesting observations about the thing we usually call money.
  - lake_vincent 4y ago
    You're exactly right, but that's kinda my point. I think my definition is quite fundamental, and holds true all the way back to the beginnings of finance. We used to just trade directly - trading horses for maize, etc. But then humans realized that having anything be money is inefficient, so we invented currency as a locally acceptable surrogate for whatever humans value. But it's still rooted in humans exchanging goods and services they find valuable, for whatever reasons.
    - dekervin 4y ago
      I tend agree with you. I have a personal definition that allow me to derive a lot of properties with simple game theory, and explain why a gold bar is great money: money is a "desire" accumulator.

notahacker 4y ago

The circularity isn't really a problem here, since the flow of money is a circle. Money is the token used to repay the debt, but the token is created because someone else has gone into debt. They in turn will need to obtain money which is the debt of someone else somewhere up the chain. (Even if it's bank reserves and cash, in well functioning modern economies they're injected by the central bank monetising existing debt, usually government debt.) It's probably more strictly true to say that having money is the credit extended in the credit/debt relationship, but they're two sides of the same coin.

usefulcat 4y ago

I think the “money is debt” idea comes from the way that money is created, which is via lending. My understanding is that when a bank lends money, they don’t deduct money from the accounts of any of their depositors. They create the loan out of thin air (or out of the borrower’s promise to repay, if you like). Likewise, when the loan is repaid, the money that goes towards the principle is effectively destroyed, and the lender keeps the interest.

brnaftr361 4y ago

Money as in the unit of account is something worth nothing, it must be worth nothing to act as a tool to evaluate the differences of value. This is liable to be debated: but for example, gold is pretty worthless and the mechanism by which it was appraised as valuable, at least the explanation I find to be the most compelling, is the Chartalist position. Wherein the government issues the currency, but demands it back in the same currency units as tax. Otherwise, gold is sort of just a social status luxury good which you pay a lot of money for but is worthless in any other context. Prior to currency you could pay tax in various commodities or as corvée labor - it does however indicate an intrinsic and continuous debt to the state. Now if we look at the anthropological record the pretensions that people were bartering before the advent of currency disappears, and it appears that it was actually a system of credit/debt - of favors within a community. And that's where the issue arose. How do you guarantee an extension to a foreign party? A traveler or a soldier? And that appears to be when barter was deployed. I think this is an important aside here because it really does underline what money was intended for a guarantee. Of course there are other aspects like portability and storage that also contribute to the nicety of currency. Finally to the point, China was actually the first known culture and eventually nation to have deployed fiat currency, and it emerged from credit-derived checks. Those debts were transferred from one person to the next informally. "Tallies weren’t just used for loans, but for any sort of contract—which is why early paper contracts also had to be cut in half and one half kept by each party. With paper contracts, there was a definite tendency for the creditor’s half to function as an IOU and thus become transferable. By 806 AD, for instance, right around the apogee of Chinese Buddhism, merchants moving tea over long distances from the far south of the country and officials transporting tax payments to the capital, all of them concerned with the dangers of carrying bullion over long distances, began to deposit their money with bankers in the capital and devised a system of promissory notes. They were called “Flying Cash,” also divided in half, like tallies, and redeemable for cash in their branches in the provinces. They quickly started passing from hand to hand and operated something like currency. The government first tried to forbid their use, then a year or two later—and this became a familiar pattern in China—when it realized that it could not suppress them, switched gears and established a bureau empowered to issue such notes themselves."[0],[1] [0] Debt: The First 5,000 Years, David Graeber [1] https://en.wikipedia.org/wiki/Flying_cash https://en.wikipedia.org/wiki/Flying_cash

tenthirtyam 4y ago

> How is "debt" defined if we're defining money as debt? When you obtain a loan from the bank, you are conveniently paying back in the form of fiat currency, which you have earned through your labour. But if you fail to meet the payments, then the real debt emerges - the collatoral (your house, car, etc). In this sense "debt" is just reinterpreted as "owing an agreed resource" which, for the most part, is conveniently valued in USD/EUR/etc. The short film "Money as debt" was the eye-opener for me. It's probably still available on youtube somewhere. I urge anyone looking for a light-hearted, but apparently factual, introduction to start there.

imtringued 4y ago

Money in the form of a one dollar bill is effectively a perfectly liquid perpetual treasury bond with a fixed interest rate of 0% that the central bank issued. In the modern economy where commercial banks create deposits through loans, the borrowers don't owe anyone money other than the interest payments on the loan, paying the loan destroys the deposits that were created through the debt. The borrower owes products and services, not money, to the holder of the liquid claim on that debt. The borrower gives up his products and services willingly because he must pay his debt with money.