Money may be called an IOU of sorts, as I mention in my video above, BUT, that does not mean money has no value as some conspiracy theorists believe. It absolutely has value, as its value is based on all the goods and services the people that use that money can provide.

This means that a country (with its own money) can ALWAYS have full-employment (and countries have done that in the past with amazing results), but for the past 40 years or so, countries like the US have intentionally kept unemployment at 6-7% to keep workers’ wages down (which is a whole other video) – claiming instead that it’s the only way to keep inflation down, which has actually been proven to be incorrect.

Back to money…

In a pure barter system, I might trade cleaning your car for a gallon of milk – meaning that we both value my time cleaning your car as equal to a gallon of milk.

1 gallon of milk = 1 car cleaning

Now, imagine that one week I need 2 gallons of milk, because I have guests coming over, but you only need your car cleaned once that week.  What could we do in that situation?

We both sit there scratching our heads until finally I come up with a solution:

How about you give me 2 gallons of milk, I clean your car (to pay for 1 gallon) and I’ll owe you another car cleaning in exchange for you giving me the extra gallon.

You think about it, and say.. OK.  And I write on a piece of paper:  I owe you a car cleaning – it’s an IOU (I Owe You) equal to 1 car cleaning.

So now we have:

1 IOU = 1 gallon of milk = 1 car cleaning

Then you, who deals in milk, go to to your neighbor because you want a basket of tomatoes for dinner. But your neighbor with the tomatoes doesn’t need milk because he already has all the milk he needs.  So the both of you sit there scratching your heads wondering what you can trade for those tomatoes, when you notice HE HAS A DIRTY CAR!

You reach into your pocket, pull out the IOU that you just received, and tell the guy.. “Hey, you need your car cleaned right?”

“Yes” says the guy.

“OK.. I have an IOU for one car cleaning here in my pocket, would you be willing to trade it for that basket of tomatoes?”

The guy thinks about it, looks at his dirty car, and asks “Can I trust this guy to clean my car?”

“Of course,” I say “he’s been cleaning my car every week for years!”

“Alright, I’ll take that IOU and I’ll give you this basket of tomatoes.”

So now we have:

1 IOU = 1 car cleaning = 1 gallon of milk = 1 basket of tomatoes

Which means that, in theory, you should be able to trade 1 IOU for any of those items.

MONEY HAS BEEN CREATED!

The value of 1 unit of the money (an IOU) is equal to each of those items above.

And, as a result, the ECONOMY has been created.

That’s what we mean by money being nothing more than IOUs.  It is a score keeper written down on a piece of paper.  It has no value other than the value of the goods (basket of tomatoes, gallon of milk, etc.) and services (cleaning a car, etc.) it represents.  The economy is simply a bunch of IOUs trading around that people can redeem for things of equal value.

The only reason why the government gets involved, is because they are able to guarantee that the IOUs floating around are not counterfeit.  That’s the ONLY reason why gold used to be used and that’s the reason why the paper and process used to make money is designed to prevent counterfeiting.

The government therefore CREATES these non-counterfietable score-keepers, pays people to do something with these scorekeepers, like build roads, etc.. (which is the only way they can get the money into the economy) and the people continue to trade the scorekeepers for their wants and services.

I’ll get into this in further detail in later videos, but, in the meantime, I wanted to clarify the IOU bit for those who wanted clarification now.

– Katerina