One of the biggest sources of confusion amongst the general population is the difference between currency and money. This is in spite of people spending most of their adult lives trying to make money. In this endless pursuit, they often wonder why they are struggling to make ends meet, why they always seem to be on a hamster wheel. So, first, what is money?
“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” – John Kenneth Galbraith
Money IS any tradeable asset with tangible value. Money is your house. Money is your car. Money is an investment property. It can also be a service, a piece of metal, water, or food. Money, is NOT, contrary to popular opinion, the dollars in your wallet or purse. Well, aside from your ability to burn it to start a fire or use it as paper to write down ideas. The dollars in your wallet are in fact, currency. Currency is used for convenience. For example, you can not carry your house around. Without money, i.e. assets, currency has near-zero value.
“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” – Vladimir Lenin, as quoted by John Maynard Keynes
In other words, people do not realize the importance of currency as a variable in their lives. A related misconception is the belief that inflation is rising prices. Incorrect. Rising prices are a symptom of inflation. Inflation is an increase in the supply of currency. What are prices, and why can they fluctuate so dramatically? Prices are the supply of currency divided by the total money supply (tangible assets). Therefore, PRICES = CURRENCY / MONEY. Who controls the increase and decrease in the supply of currency? The private Federal Reserve Corporation. How do they do that? Usually, they do it thru fractional reserve lending. Since the great financial crisis, however, the Federal Reserve’s ability to increase the currency supply through fractional reserve lending has been muted. Why? Lack of eligible, marginal borrowers. In other words, people are broke and already saturated with debt. The Fed still has one very eager borrower, however. The U.S. Government. More on that in another post. The Fed has also bypassed its lending mechanism by utilizing another method to increase the currency supply: manipulating the stock market to not let prices fall substantively. How do they do that? Via an increase in “reserves” held on behalf of some of the biggest banks in the world, known as the “primary dealers”. These reserves are then leveraged to produce the liquidity necessary for constant stock market manipulation.
There is a lot to unpack in what I stated above but the moral of the story is as follows. The Fed can influence PRICES dramatically by increasing (INFLATION) or decreasing (DEFLATION) the currency in circulation. These changes in currency than increase or decrease claims or demand for tangible assets, i.e. MONEY. Further, the general public’s lack of knowledge regarding this process puts most people at a significant disadvantage economically.