What Creates Money

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The title of this piece contains the word money. It's a word we've used for a long time and now it's the wrong word. The title of this should be What Creates Dollars. Money (see How I Use the Word Money) is made up of two things, the bill and the dollars it contains. It's the dollars that matter, not the bill. So on to the correct title.

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What Creates Dollars

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There's a very popular phrase - Government prints money, by which we really mean dollars (what really buys stuff). It's impossible for government to print dollars. The only thing government can do is strike a coin, print a piece of paper or change a number in an account. It can only "print" a "bill." None of those have anything to do with printing dollars.

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There's only one thing that creates dollars - labor. Everything else just passes around the dollars labor created.

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Let's say government prints a $20 bill. There's no dollars in it. Government gives you that $20 bill and you didn't do anything to earn it. There's still no dollars in it. Your neighbor's kid mows your lawn and you give her that $20 bill. Now that $20 bill contains 20 dollars.

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I just got a check from government with $1,200 printed on it. I got it because I exist, not because I did anything to earn it.

 

Are there dollars in that check? Depends. Did government borrow money that contain dollars to put into that check? If so, then the dollars from those who loaned government their money is in it. I didn't put any dollars into that check because I didn't do anything to earn it. Did government just print the check, but didn't borrow any money for it (this is what we typically called printing money, except here)? If so, then there are no dollars in it.

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If the check has no dollars in it and I use it to pay for $1,200 of repairs to my car, did the dealer get dollars? No. It got money that had no dollars. However, the labor of the mechanics created dollars. So from that point on that $1,200 check and whatever it was divided up into, contains 1,200 dollars.

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Just a fellow American