Money - How to make money out of nowhere?
When we have no money, we turn to the bank to request a loan. The bank actually takes money from other customers and passes it on to us and in return, we return the money plus interest. But what would happen if all customers demanded to withdraw their money at the same time?
On the evolution of money, on its course of development, and on gold coins that passed by and represented commodities for exchange. That way, instead of paying the nut manufacturer with milk I make, and basically forcing him to stick with milk even if he doesn't need it, I pay him a gold coin that is really worth a commodity, and he'll already replace it with whatever commodity he wants. Such money is called a professional language called commodity money.
In the second phase, jewelry owners had safes to which residents brought the coins. For each coin, for example, the residents received a paper note from the jeweler that says something like "I pledge to give this note holder a gold coin from Oshi's shelf in the safe." The townspeople in our example exchanged such bills and here are the parents of our money notes.
But the main step that made our jeweler a banker was the next step: Suppose we have five people in town. Each has twenty gold coins. That means a total of one hundred gold coins. Each of us deposited with the jeweler twenty gold coins and received twenty coins in total. We, the residents of the city pay each other in bills.
Suppose I bought from John Milk, instead of giving him a gold coin, I give him a note that says (in the jeweler's name) "I pledge to give a gold coin to the note holder from Oshi's shelf in the safe." John walks around with this bill with him. At the safe, for now, nothing happened and John could do two things: go to the bank and ask them to transfer a coin from my shelf to his shelf or he could simply pay that bill to anyone else.
Take 20 coins, return 25
So far the simple part. But the story gets complicated. A new man arrived in the city with only five gold coins and lots of diligence. He needs twenty more gold coins to buy a piece of land, to buy tools and seeds. But he has none. He befriends the jeweler and the jeweler offers him an interesting idea.
Listen, the jeweler tells him, I have a hundred gold coins on the shelves. They belong to people in the city. But they all get along with the papers I give them and don't need their gold at all. They never come to pick him up. I'll give you twenty gold coins.
Land regulation, seed and plow regulation. You will grow a crop and next year return me twenty, twenty-five coins (the five additional coins are interested the banker receives and earns on our money, depositors).
And here it is. A miracle happened to us. Now there are a hundred notes on our market for a hundred gold coins, but there is a man holding twenty more coins. Suddenly we have another 20 gold coins in town. Rotates about 120 coins. The bank created it from scratch.
Let's go another step. Our man is trying to buy the gold coins, but we, the townspeople, only want jeweler's papers. For what we, we say, deal with real gold. It's heavy and unsafe.
The man returns to the jeweler and returns the coins to him, asking for banknotes for twenty gold coins. Now a hundred gold coins are lying on the shelves of the bank, but there are one hundred and twenty notes in the city by which we pay each other.
So what is money?
In the first phase, it was simply a paper that exchanges the values of goods we produce in the city, but suddenly it represents something else. It has become a debt ratio. We now have one hundred and twenty notes on the market and are now expressing debt, the banker's debt to us in gold. But there is still something problematic here - what if we all suddenly wanted our coins?
The bank will be in trouble. He will have no return. But what we want, we ask. Indeed, we have no reason for everything to be all right. Let’s say the banker is borrowing more and more money from our money for more and more people who come to town and suddenly it is revealed to us. We are afraid that our money will disappear.
What happens next is called "running on the bank" - huge queues of depositors standing in front of the bank's doors asking to withdraw the gold they have in the safe. They hand over the bill and get the gold. so what's the problem?
Remember the example? There are 120 bills in the city for a total of twenty gold coins, but there are only one hundred coins at the bank. That means the last ones in line will be left with nothing. The bank collapses and goes bankrupt.
What’s interesting here is that he could have acted for a long time if it hadn’t turned out and everyone was happy, but once there was a hint of a rumor about a crisis, the whole business was collapsing.
so what are we doing? Is there a way to deal with these problems? Well, there are many ways and different ideological directions. Starting from a lawsuit, in the style of the left economy to nationalize all banks and to make the state the sole producer of money. A right-wing concept would allow anyone who wants to open a bank. Unregulated, we ask? Without any supervision.
Tomorrow I open a bank. If I am trustworthy and fair and do not lend too many people, my bank will not collapse, get a good name, and more people will deposit it, and if not? Then it will collapse. that's how it is. free market.
And today? Well, today the system is completely different, and we are only in the early stages of describing today's money and banking system. Still, nowadays there is government oversight of banks or, at the very least, governments try to monitor, among other things, through reserve regulations.
so what are we doing? Is there a way to deal with these problems? Well, there are many ways and different ideological directions. Starting from a lawsuit, in the style of the left economy to nationalize all banks and to make the state the sole producer of money. A right-wing concept would allow anyone who wants to open a bank. Unregulated, we ask? Without any supervision.
Tomorrow I open a bank. If I am trustworthy and fair and do not lend too many people, my bank will not collapse, get a good name, and more people will deposit it, and if not? Then it will collapse. that's how it is. free market.
And today? Well, today the system is completely different, and we are only in the early stages of describing today's money and banking system. Still, nowadays there is government oversight of banks or, at the very least, governments try to monitor, among other things, through reserve regulations.
What are the reserves?
The reserves are the amount (in our example) of gold coins that the bank must not lend to new people. The amount he has to leave on the register and not as a loan to new people.
Suppose the jeweler has a hundred gold coins in the safe. He can lend thirty to new people, and then his reserves are 70 gold coins. But if he borrows from the century, 90 gold coins, his reserves are only ten gold coins.
In the first example, the bank will earn less than the interest it receives from the new people coming to town, but it will be more stable. There is less chance of collapsing. In the second example, the bank earns a lot of money from interest, but risks its stability and could collapse so depositors could lose their money.
The government can determine by law the number of reserves that banks hold and thus control the amount of money in the market and the stability of the banks.
What now?
We can understand that it is not advisable to rely on one source of income from one source of money.
Also not for banks, my recommendation is to produce a variety of different sources of income from money and from different companies/businesses/ people.
Remember - sometimes the money is in the simple ways they saw the example of banks, they make more money than their own.
Write to me if you have any questions.
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