✒ Book read in 2021 #13
In a debt-based monetary system, “money” is created from the balance sheet whenever someone borrows, the IOUs (I-owe-you), or promises to repay, is a liability one somebody’s balance sheet within the double-entry accounting system.
The author reframed the concept to represent this relationship in terms of layers. Except the first layer at the apex (think gold), all layers created beneath the first one are promises to pay the money in the preceding layer. Money is made “elastic” due to its fractionally-reserved nature, meaning that money supply can be expanded when it doesn’t have to be fully reserved with gold in a vault. A new layer created is therefore expanded and has an even larger base than the preceding layer.
From this perspective, the operation of money is really a pyramid scheme.