Credit To The People
(413) 329-3200​

~ Helping people understand and take responsibility 
for using credit and money for the benefit of all ~
The Nature of Money
by John G Root Jr
February 8, 2015

This essay looks at the nature of money from the point of view of the phenomenon of money. Where does money come from, how is it created, how is it managed? As you read this essay, keep the following questions in mind: Why didn’t we learn this in school? Why are none of these ideas taught in economics and history? Why don’t historians follow the money to find out about what happened and why, i.e. who funded the wars, the industrial revolution, the digital revolution? What could we, the people do, if we had this understanding of money?

Money and Civilization

Generally speaking we are taught that civilization arose in the mists of time, long ago, with the development of Agriculture. The first major civilization that we recognize arose in the fertile valley between the Euphrates and Tigris Rivers, supposedly as a result of the surplus food the people were able to produce. However, it is reasonable to assume that for surplus food to create civilization there must also be a means for people to procure the food they need so that they can do all the other things beside grow food, that create civilization. It is money that creates civilization because money allows the food to be distributed and enables people to do everything else.

Most of the written records on clay tablets from ancient Sumer are what appear to be accounting records. What we may assume from this is that the first kind of money, the kind that enables civilization to arise, is receipts for grain and other agricultural products that are stored in the warehouses of the Priest King, or Pharaoh. A receipt for grain, a shekel, like a bushel of grain, is the kind of money that the development of a civilization is based on. This kind of money simply represents the value of a shekel of grain. The clay tablet, the receipt for the grain, circulates as money facilitating all the trade that gives rise to a complex economy and society. It is the political and religious authority, the Priest King, that issues the currency. In Egypt the value of a receipt for a shekel of grain decreased over the course of the year (from harvest to harvest) by about 10% to represent the decrease in value of the grain due to spoilage, rats, etc. The fact that the currency decreased in value meant that it was not a viable store of wealth. People spent their money rather than saving or hoarding it. Wealth was “stored” in the monuments we can still visit today, such as the pyramids, temples and palaces of the ancient civilizations.

Gold as Money

Receipts for grain are obviously not valuable in themselves. They are money based on the authority of the sovereign, the Priest King, and are only accepted in his kingdom.  

Without going into the issue in any depth, it is reasonable to recognize that you can’t pay or supply an army doing battle outside the kingdom with receipts for grain. For this you need money with recognizable, intrinsic value, i.e. gold or silver. Gold can be spent just about anywhere. War, conquest, is the origin of gold as money.

Gold is excellent as money, because it doesn’t deteriorate, it doesn’t get consumed, it is easy to mint into coins and it has a very high value relative to its weight and size. Gold is therefore a most excellent store of value. Gold is always hoarded, because it confers significant power on its owners. If gold is issued by the Sovereign in a Kingdom as money, i.e. gold coins and silver pennies are to be the money, then their value has to be set by law. A gold coin with a market value that fluctuates cannot serve as money. However, it is obvious that for a gold coin to serve as money, its value has to be set higher than its value as gold. Its value is set by law, not by the market. If the value of the gold coin, as set by law, drops below its value as gold, then it ceases to be money and is sold as gold, the commodity. This has happened recently with pennies, the price of copper rose above the value of a penny and so pennies made earlier than 1982 with high copper content can be sold to scrap metal dealers for twice their face value.  

Money and Debt

The most damaging aspect of not understanding the nature of money is the relationship between money and debt. Throughout history debts are expressed in money and whether or not one can get the money to pay one's debts is very likely to be the most determining influence in shaping one’s life. When money is plentiful, paying debts is easy, but when money becomes scarce, i.e. the money supply shrinks, then paying one’s debts is difficult and foreclosures and forfeitures change one’s life significantly.

Throughout history debt arises because people want to buy or do something for which they do not have enough money when they want to buy or do it. If they are sure they can acquire enough money to make payments according to the terms of the loan, then borrowing makes eminent sense.  

When money is borrowed it is assumed that the person or institution that lends the money has the money and deserves to receive interest to cover the risk and the opportunity cost of the loan. This is the rationale that modern economies are based on. However, there have been long periods of history where the way in which interest transfers the wealth from the poor (who need to borrow) to the wealthy (who have more than they need and can lend) was seen as theft and unjust, and so usury, the charging of interest, was banned. The Muslim faith still bans usury. The reason lies in simple justice. Debts and interest are used by the rich and powerful to exercise power over the masses. They do this by the existential fear that being in debt engenders. Loans are due and payable regardless of what happens in the economy or the borrower's life. Borrowers must do whatever is necessary to have enough money to pay the debt for fear of what will happen if they can’t pay. Usually, the reason a person can’t pay the debt has nothing to do with the person, but rather with the social or economic conditions beyond one’s control. A major illness or accident, a shrinking of the money supply i.e. a recession or a depression, an unforeseeable event, such as a game changing innovation, or market manipulation, etc. are the most likely causes of being unable to pay.  

On the other hand, when money is not scarce, that is, when it is based on receipts for real work performed and goods and services produced, there is generally no need to borrow. Everyone enjoys enough of a surplus that retained earnings and savings are sufficient to fund new ventures and unexpected expenses. Unlike loans at interest, the return on an equity investment is related to the fortunes of the enterprise. The money is representing the reality, not creating the reality as the terms of a loan do.  

Market Money and Gold

The monetary systems of the Greek and Roman Republics were based on money issued as money by the Greek and Roman Senate. The Greek and Roman Senators were clear that they had a primary responsibility to furnish their people with the money they needed to realize their potential. The Greek and Roman Republics are good examples of what can happen when money is issued as money, in the right amount, to further public purposes. The Greek and Roman Republics developed a high culture. However when Alexander the Great in Greece and Ceasar in Rome set out to create the Greek and Roman Empires, they both changed the money system to gold, because you need gold to pay an army far from the jurisdiction of the Senate. With the fall of the Roman Empire, the Dark Ages set in and gold and silver coins were the money and money was scarce.  

The Dark Ages came to an end and the Middle Ages arose because money was reinvented. Market money was issued by merchants, or by the market itself, or the town where the market was held, to represent the value of the goods and services the merchants brought to the market. With no shortage of money, all the goods and services in demand could be traded. At the end of the market, the accounts needing to be settled between the participating vendors were settled with silver pennies. (See the video by Paul Grignon called The Essence of Money, a Medieval Tale) With no shortage of money, the Middle Ages developed a high culture and people spent only about 14 weeks out of the year providing for their material needs. How is that possible?  

Surplus from Exchange

Every freely entered into exchange of what I have or do for what you have or do, facilitated by money, makes both parties to the exchange better off. Everything with a price goes from production, through distribution to consumption in a series of exchanges that are profitable to both parties to the exchange. This is human nature, and is the basis of economics. If an exchange did not make you better off, why would you make it? With all the exchanges that make up the economy being profitable for both parties to the exchange, we should all be increasingly better off. We should all enjoy rising standards of living. During the middle ages when the money was issued to represent the real goods and services in the market, there was general prosperity and rising standards of living and people spent their time praising God, celebrating, building cathedrals, going on pilgrimages, going on Crusades, etc.  

Goldsmiths become Bankers

However, you can’t pay for war, or goods from afar, with market money. The princes and the merchants would store their gold with the goldsmiths who would give them a receipt for the gold. The receipt for gold was for a specific weight and purity of gold and so a receipt for gold from a reputable Goldsmith was actually better than gold for use as money because it was much easier to carry, and it had to be signed over to the seller and so was not valuable if stolen (you couldn’t cash it in if it wasn’t made out to you). Receipts for gold became the accepted form of money for large transactions and foreign trade. Goldsmiths became bankers when they lent receipts for gold they did not have. They pretended to have gold to lend, so merchants thought they were borrowing valuable gold and readily agreed to pay interest. Goldsmiths as bankers became fabulously wealthy lending gold they did not have and charging interest. If the merchants doubted that the goldsmith could have that much gold, they would cash in their receipts and, if there was a run on the bank (more people wanted their gold than the Banker had in “reserve”) the goldsmith would close his shop until his fellow bankers could supply him with enough gold to save the deception. Bankers banded together and formed a secret society and they spent their money on all the things that would protect the deception. Bankers were so wealthy that they gradually learned how to control all the Kings and princes and they funded a society into existence that preserved their status as the hidden sovereign and kept the banking secret.

Modern Money and Central Banks

The fractional reserve monetary system administered by central banks, is understood by very few people because it came about through a fundamental fraud. It is reasonable to say that our modern economy and political system, including the media and our educational system, have all been created to keep the fraud from being discovered. The fraud is very simple to understand, once you see it. It is, however, difficult to see because it is built into the way we conduct our lives and the way in which we conceive of ourselves. Be patient reading this and follow closely, because the fraud is staring you in the face with every transaction you make with a bank. It is worth the attention because we can do exactly what banks do, but do it so that it benefits us and enables us to create a society that benefits everyone, not just banks. The fraud can be uncovered by looking carefully at, and following empirically and logically, what happens in our interactions with banks.  

First off, we think of money as cash, coins and bills, which legally we must use as money. There is only one kind of money that is viable as money and that is what we think of as the dollar. So the first piece of the fraud is that we think that the dollar is money issued by the United States Government to facilitate trade. This is not true as you can discover when you look at a dollar bill. The bill says Federal Reserve Note, not United States Note.  

You may recall when the Too Big To Fail Banks got in trouble because they treated bets as assets and were bankrupt when the bets they treated as assets turned into liabilities. Because they need to preserve the deception that the money is issued by the government, they made a show of going to Congress to get bailed out. If the Federal Reserve System were an agency of the United States Government it would have let the banks fail and managed the bailout so that the victims of the securitized debt obligations scheme were made whole and the perpetrators of the scheme would lose the bets they made. The major media made it seem as if there would be dire consequences if the banks were not bailed out. The vast majority of the people wanted their government to bail out the victims not the banks. The way that the bailout played out makes it clear that the Federal Reserve System serves the banks, not the people. The Audit the Fed movement brought to the public’s attention that the Fed is owned by its member banks and that it is above the law, i.e. can’t be audited. But the major media never reported these revelations. As Elizabeth Warren pointed out, the too big to fail bankers are also too big to jail.

How is it that the sovereign prerogative to issue the currency has been usurped by the banks? Aren’t we the people the ultimate sovereign in our republic, shouldn’t we the people be issuing the currency? 

Where do the banks get their money? This can be discovered just by thinking about our experience dealing with banks. Imagine that you get a hundred dollar bill in a birthday card. Because you usually use your debit card and because a hundred dollar bill is often scrutinized when you spend it, you fill out a deposit slip and go to the bank to deposit it in your account. After you hand the teller the deposit slip and the hundred dollar bill you get a receipt that shows the balance in your bank account went up by $100. But what actually happened? Where did the teller put the hundred dollar bill and what does the increase in your bank account actually mean? The teller put the hundred dollar bill in the cash drawer. It belongs to the bank now, and is shown on the bank’s balance sheet as an asset of the bank. So what did the bank put in your account? Could it be that the bank owes you $100? Of course, and that is why they pay you a little bit of interest. The hundred dollars in your account is the corresponding liability of the bank. You have lent the bank $100 as a demand loan. The bank has to pay you the $100 whenever you demand it, and you demand it when you withdraw cash, write a check, or swipe your debit card or make a payment with online banking. When you withdraw $100 cash, the teller gives you the cash and lowers your bank account by that amount. When you swipe your debit card for the purchase of something, the bank transfers $100 to the seller’s bank account, most often at another bank. Your bank account goes down by $100 and the seller’s bank account goes up by $100, but no cash was transferred. Banks and the banking system settle the accounts between us, and they do it totally reliably, if not very efficiently. No cash is actually transferred; Instead, banks use accounting entries. Where then do banks get their money? They get it from you; You put money in the bank that represents real value, typically a paycheck, but in our example, a birthday gift. So banks get their money from us. By the way, banking language says that you deposited $100 in your bank account, but that is deceptive since you lent the bank $100. Now it gets interesting.

When it comes time to buy a house, where are you most likely to get the money? Only very few of us have, or can save enough, to buy a house outright. Almost all of us who are at least lower middle class, borrow the money from a bank to buy our house. It is the major debt that most of us carry; and under the terms of the mortgage, the bank holds the title to the house until we have paid off the loan, so usually for the whole time we live in the house, especially if it is the typical 30 year mortgage.  

For clarity, when a person lends someone money, they lend them real money that they have. When they lend the money, they are very clear about what that money represents, since they know what they did to have it. They feel justified in receiving interest because what they are doing is risky and they might be forgoing another use of the money. Once they have lent the money, it remains their asset, and it is the liability of the borrower. But the lender doesn’t have it anymore, the borrower has it. The lender won’t have that money again until it is paid back!

Does something similar happen when you borrow from the bank? Follow what happens. You go to your bank and ask for the money to buy a house. The bank gets a lot of information from you, about your job or career, your payment history, your credit worthiness, etc. Then if they are satisfied that you will be able to and will pay, they give you a commitment letter which says that you qualify for so much at a specific rate of interest. You are now in a position to buy a house with all that that entails, knowing that you will have the money to pay for it and also knowing what you will have to come up with in the way of payment every month for 30 years. It feels like, and it is, a big commitment, typically about a third of one’s income.  

At the closing, the first thing that you do is sign the Promissory Note, which is your commitment to make the monthly payments of interest and principal. If you look at the amortization schedule, you will see that for the first 15 years or so, you will be paying mostly interest, and in the latter 15 years, you will be paying more principal than interest. Let’s say you are borrowing $250,000 to buy the house and the total payments, at a historically usual rate of interest of 6% is $539,595.47, over twice the value of the house you are buying. Also, you are paying the bank with present value dollars, which become inflated dollars over time. Then you sign the mortgage, which states that the house belongs to you only after you have satisfied the terms of the promissory note, and if you fail to fulfill your promise, the bank gets to decide what to do with “your” house. Big commitment.  

When these two documents are signed by you and the bank officer, and witnessed by the lawyers, the bank officer goes out and comes back after a while with checks for everyone who gets one; the seller, the real estate agents, the lawyers, the title company, the Register of Deeds, etc., and you get a bank account with a negative balance of $539,595.47, representing principal plus interest you owe to the bank. What did the banker do when he left the room with the Promissory Note and the Mortgage? It is not hard to imagine given what we know about when we deposit cash. What is the Promissory Note? Isn’t it obviously valuable, almost like cash? Isn’t it now an asset of the bank? Didn’t you just give the bank $539,595.47 through your promise to pay? The promissory note is the bank’s asset and your liability. Just as when a person lends money, the money that is loaned is the lender’s asset. BUT what does the bank do next? It “deposits” into your bank account $250,000 and cuts checks from it to all the people who get paid at the closing. What is the $250,000? Is it money the bank has earned? Not at all. Banks are not like people or other companies. Banks issue their credit and deceive us into thinking it is real money. How is this done?

When you go to deposit money in a bank, the money is your asset and the bank's liability. When you borrow money and sign a promissory note, this is considered your liability and the bank's asset. But what actually happens when banks issue a loan? What they loan you is "money" not based on real value, but based on their monetizing through an accounting entry the credit they issue to you based on your promise to pay, their asset. We then have to earn money based on real value to make good on our promise to pay plus pay interest. In effect, through an accounting entry, the bank appropriates our hard earned money and for its own benefit. 

Could the money the bank lends you come from somewhere other than you? Could it come from the bank’s capital? What does a bank balance sheet look like? It has promises to pay (loans) and cash as assets, and “deposits” as its liabilities, and the difference is retained earnings. (For reference purposes, go to the following link for a typical bank’s balance sheet: So there can never be enough retained earnings to fund more than a small percentage of the loans. Does it come from the depositors, as most of us think? If it did, wouldn’t the bank have to tell its depositors that it had lent their money to someone and they can only withdraw it when the loan is repaid? Since the banks don’t do that, there is only one place the bank can get the value to create the money they “lend” you, and that is from you! Banks monetize your credit. Banks issue the money you borrow on the basis of your commitment to do things in the economy that people value that will make the money valuable.

There is a wonderfully clear article by David Graeber in the Guardian about the Bank of England admitting that money is an IOU. He makes the point that there is absolutely no need for austerity! Available here:

Consequences of Bank Credit

Hard as it may be to believe, all the money in circulation, except for coins, is issued by banks as debt. The entire banking system is extracting the wealth that we all produce by doing things for each other that we value, and transferring it from us to them, the owners of the banks. Since most of the debt is a result of we, the people, needing money to do something that we all agree is a good thing, such as buying a house or getting an education or living the American dream, and the banks create that money as debt at interest, and the interest is usually more than the principal we needed, we are creating all the value and the owners of the banks are reaping the lion’s share of the benefits. It is reasonable to see that the controllers of the monetary system are the supreme sovereign, creating the conditions in which their subjects live and work for their benefit.  

There is a very good video by Paul Grignon called Money as Debt 2, Promises Unleashed that explains all this very well and is well worth watching.

How Society Could Be

We, the people, are providing the value represented by the money banks create. We, the people, are going to work to make our credit valuable, just because we are creditworthy. We, the people, could create a banking system that we own and that we control to assure us that we will always have access to the money that our capacities, our credit worthiness, warrant. We could decide the best way to issue it. No need for it to be a loan, it could be an investment or a grant, or some combination.

If we had such a banking system, we could come up with a much better way of governing ourselves than representative democracy. We could implement a decision making process that is participatory, inclusive, deliberative and leads towards consensus, and base it on consent. We could then sit together and decide what kind of a society we want. We could look at all the things that we really value and we could issue the money to accomplish them. The conversation about what we value, with the power to fund what we agree would benefit everyone, is the pivot around which everything can change. We, the people, can create a prosperous, sustainable, just and peaceful society. With no shortage of money and the ability to capitalize everyone’s capacities, we are only limited by the real limits, such as our desire to do something, our capacity to do it, the sustainable use of the natural resources, and the demand.

Common Good Finance and Common Good Communities

This is what Common Good Finance is working on with rCredits. rCredits is a robust digital alternative banking system accessed with a QR code on a smartphone or the internet. It is intended to create Common Good Communities wherever it is established. Currently (February 2015) there is a Common Good Community developing in Greenfield, MA, where the pilot project to prove the concept and the software have been completed. There are pilot projects beginning in Ann Arbor, MI, in Brattleboro, VT and there is interest in getting started from many people around the country.

Check out the website and see what Common Good Finance is up to at

Credit to the People is not affiliated with any particular approach to returning our credit to us -- the people of these United States. We are very keenly aware that there are multiple approaches that could result in the people becoming sovereign and able to use the primary tool of the sovereign, money creation, to create a society to benefit everyone.

We believe that we have to both reform the monetary system and democracy. We need to reform the monetary system so that we all have access to our national and individual credit, and we need to reform our democracy so that we can decide together what to issue money for.

Whatever form of government and monetary system we create, it will be based on the active and ongoing consent of the governed or it will not create a society that benefits everyone.