Money determines how our economies work

The way our money works determines how our economies work. If we are prepared to see 'money' in the broadest possible sense as the set of laws, rules, regulations and conventions that govern our behaviour in the realm of producing our means of life, then it becomes apparent how 'money' produces the general characteristics of modern economies identified above. This is the 'operating system' of our economies.

All national money systems are debt-based. This means that money is issued into circulation by financial institutions when it is loaned in one form or another. These loans have to be repaid, usually with interest or benefit of some kind (i.e. more has to be paid back than was originally loaned). The only way that the extra amount can enter the economy so that the borrowers can earn it to pay back the interest as well as the principal is if more money is loaned into existence by others.

The rate at which new money enters the economy must be equal to or exceed the amount of interest that has to be paid back. There is thus a never-ending, upward spiral of debt, interest and money creation. If the amount of new money created is less than the amount owed in interest, the economy enters into recession with the dire consequences that are so familiar, including foreclosures and rising unemployment.

This need for the money supply to grow the driving force behind the need for all economies to grow.